China, the second-largest corn user, may more than double purchases to a record as it seeks to boost stockpiles and cool the fastest inflation in three years. The country will probably buy 5 million metric tons this year from about 2 million tons in 2010, said Abdolreza Abbassian, senior economist at the United Nations’ Food & Agriculture Organization. That would top the 4.3 million tons in the year ended September 1995, according to U.S. government data. Increasing demand may support Chicago prices that fell 16 percent from a three-year high last month. Shrinking farmland and water shortages in China have combined with rising incomes and a doubling in pork consumption to cut supply and lift costs, driving inflation in June to 6.4 percent, the most since 2008. “It’s all very strategic,” said Victor Thianpiriya, a commodity analyst at Australia & New Zealand Banking Group Ltd. (ANZ) The country bought 540,000 tons of U.S. corn for delivery in the year starting Sept. 1 and a further 300,000 tons was sold to unknown destinations, the U.S. government said July 7. That brought the amount sold by exporters without declaring a destination to about 2.5 million tons, fueling speculation that China had already bought 3 million tons or more, Dave Smoldt, vice president of operations at INTL FCStone Inc., said in an e-mail. Corn gained to a two-week high of $6.6375 a bushel today after jumping 4 percent yesterday when the U.S. Department of Agriculture said world stockpiles would be less than expected. Drought and dwindling arable land in China curbed growth in supplies as urban incomes more than tripled in the past decade. Water, Farmland Farmland shrank by 8.33 million hectares (20.6 million acres) in the past 12 years, said Premier Wen Jiabao’s top agriculture adviser Chen Xiwen in March. Land under cultivation has dropped almost to the government’s 120 million hectare limit as new apartments and factories eroded supply and farmers were attracted by jobs in the city. Declining water supply and drought has added to farmers’ woes, forcing the country to rely more on the overseas market to meet domestic demand, according to Lee McIntire, chief executive officer of CH2M Hill Cos., an Englewood, Colorado-based company that provides water-treatment and irrigation services. Consumption of pork in China, the world’s biggest, doubled in the past two decades and demand for chicken quadrupled, USDA data show. That helped U.S. farmers whose income is predicted by the government to climb to a record $94.7 billion this year on exports. The U.S. is the top shipper of wheat, corn and soybeans. Food-price inflation in China accelerated to 14.4 percent in June, the fastest pace since July 2008. The central bank has raised interest rates three times this year, and boosted banks’ reserve requirements nine times since November to a record level, as it grapples to contain price increases. ‘Upside Risk’ The corn harvest in China may increase by 2.4 percent to an all-time high of 181.5 million tons this year, according to the China National Grain & Oils Information Center today. “If the Chinese are buying, probably they know something about their production that we don’t,” Abbassian said in an interview from Italy yesterday. “I cannot speculate on that.” Expanding demand from China may tighten global stockpiles expected to drop 4.3 percent to 115.66 million tons before the 2012 harvests, the lowest level in five years, as production trails demand for a third straight year, the USDA said yesterday. “We see upside risk to corn exports to China,” said Goldman Sachs Group Inc. (GS) in a report. Anecdotal evidence over the past weeks signals purchases for 2011-2012 may already exceed the new 2 million ton USDA forecast, it said. While production in China continues to grow, it’s still not keeping pace with demand, said Michael Creed, an agribusiness economist at National Australia Bank. “China is no longer fully self-sufficient,” he said in an interview from Melbourne yesterday. “We will see more Chinese activity in the corn market over the coming years.” To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net To contact the editor responsible for this story: James Poole in Singapore at jpoole4@bloomberg.net

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