A drought in central China, billed as the worst in decades, is expected to have only a limited impact on the country's corn output as higher overall planted acreage this year compensates for any damage to crops, analysts said. Continued high domestic supply should keep a lid on overseas purchases of corn by China, the world's No 2 consumer, and also drag on global prices of the grain that have plunged more than 15 percent so far this year.
China is already sitting on a massive supply of the grain after four years of record harvests and has cut imports by nearly 10 percent in the first half of this year. "Production in Henan will probably fall by between 1 million to 2 million tonnes (due to the drought) but that's not going to have a noticeable impact on China's total corn output," said a researcher from the China National Grain and Oils Information Center (CNGOIC), an official think-tank.
"Overall production is still going to rise and the market will remain oversupplied." Henan in central China, which accounts for about a fifth of the country's total corn production, is experiencing its worst drought in 40 years with rainfall at less than half of normal levels, state news agency Xinhua reported. But the drought-stricken areas are mostly centred on other crops, such as barley and soybeans, analysts noted.
The CNGOIC only slightly cut its estimate for China's 2014 corn output to 222.3 million tonnes, which would still be up 1.7 percent from a year ago. It had forecast a rise of 2 percent prior to the drought. While the drought has sparked a rally in corn and wheat futures on the Dalian Commodity Exchange, analysts said gains were likely to be short-lived as estimates of widespread crop damage may be exaggerated.
At the peak of the drought in early August, the Henan government said some 830,000 hectares of farmland were damaged, but that number has since fallen to about 508,000 hectares as of August 10 after heavy rainfall over the weekend, said Meng Jinhui, a Beijing-based grains analyst at COFCO Futures. China's corn acreage is set to rise 3.6 percent from a year ago to reach 3.65 million hectares this year, said Ma Wenfeng, an analyst at Beijing Orient Agribusiness Consultant Ltd, which would counter crop-loss from the drought.
