Beijing and the influential U.S. agriculture department may have overstated China's corn crop by as much as 14 percent, pointing to higher imports from the world's second-largest consumer of the grain that could squeeze already tightening global supplies.

If China plugs the gap between projected and actual domestic supply with additional corn imports, it would drive up international prices already near four-month highs. Wheat markets could feel the impact too if Beijing snaps up the grain as a substitute to corn for animal feed.

Many are skeptical over the corn output figure, said Li Qiang, a senior analyst with JC Intelligence (JCI), an influential consultancy. The industry expected an output increase, but not by as much as the bureau says.

China's National Bureau of Statistics said that farms produced a record corn crop in 2011 of 191.8 million tonnes. But enthusiastic local officials often overstate the size of crops in China to impress central authorities and win bigger subsidies.

A Reuters investigation based on assessments from some cooperatives, key trading houses and JCI suggests that Beijing has overstated the crop size by between 6.8 million tonnes and 24 million tonnes, the equivalent of between 12 days and 44 days of consumption.

The impact of tighter-than-expected supplies is already being felt in the domestic market. Competition between local industry processors and state-owned procurement agencies for supplies is pushing domestic prices higher.

State grain buyers are struggling to replenish depleted national stocks, raising the risk the government will limit purchases by processors, whose rapid expansion has been blamed by Beijing for threatening the country's grains supply.

Strategic stocks are well below the government's comfort level after three years in which Beijing has drawn them down to boost domestic supply and dampen food prices driven higher by growing demand for meat from an increasingly affluent population. Low stockpiles give Beijing little wriggle room before it has to import.

The United States Department of Agriculture, whose figures international traders rely on to gauge global demand and supply, estimates the record crop plus imports of four million tonnes will meet China's demand this year.

But it may need much more to plug the supply shortfall caused by the crop overestimate, bolstering a global corn market already being hampered by a severe drought in agriculture powerhouses Brazil and Argentina.

Just two weeks ago, China bought 120,000 tonnes, it's first purchase since the harvest was completed late last year.

Chicago Board of Trade benchmark corn prices hit their highest levels since January this week as drought in agricultural powerhouses Brazil and Argentina worried buyers, although the price is well off the highs of 2010 and 2011.

U.S. corn stocks are forecast by the U.S. agriculture department to shrink this year to their smallest level in 16 years, reducing U.S. export potential to meet China's needs.

Still, global wheat supplies are in a better position to take up some of the slack. Major producer Australia is expecting record-high wheat output this year, adding to bumper supplies from the Black Sea region.

World wheat stocks at the end of the 2011/12 season look set to eclipse the previous record set more than a decade ago, according to the International Grains Council (IGC), which raised its forecast for production to an all-time high.

That will encourage China to buy more wheat and only take corn when prices dip or look relatively cheap.

They are smart buyers so they will be very opportunistic, choosing the right time to buy, said Adam Davis, a senior commodity analyst at Merricks Capital in Melbourne.

We see year-on-year increase in corn imports, just as we did with soybean imports.

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China corn yields, acreage: http://link.reuters.com/tet76s

Corn versus soy imports: http://link.reuters.com/xet76s

China pork production: http://link.reuters.com/set76s

Top corn importers, exporters: http://r.reuters.com/cav42s

China-Argentina pact to heat up competition for U.S. corn:

Daily grain market wrap:

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HOW MUCH LESS?

The government's subsidy policy has led farmers to increase acreage dedicated to corn and grow less soybeans, so a rise in output could be expected.

But JCI estimates China's corn crop at 168 million tonnes, close to 24 million tonnes lower than the official data. JCI was the first to challenge the high official corn crop estimates in 2009, and the consultancy's skepticism was borne out by China's 2010 imports.

Official think-tank China National Grain and Oils Information Centre puts the harvest at 185 million tonnes, more than 6 million tonnes below the official estimate.

Some traders from state-owned grains trading houses pegged output at about 180 million tonnes.

China's officials say it has enough corn reserves and will not need to import large quantities this year. But traders are skeptical, arguing the officials are trying to talk prices down ahead of a shopping spree.

The growing realization that domestic corn supplies are tighter than previously thought is driving prices higher. Farmers have held on to their grain in expectation prices will rise more.

Physical corn prices at Dalian, China's largest grains port, have risen to 2,400 yuan a tonne, the highest since October and edging towards the record of 2,480 a tonne reached before the harvest started in October.

Corn processors have been raising their purchase prices because farmers are not selling, said Zheng Guichen, deputy general manager with Dacheng Group, the country's top corn processor based in Jilin province in the northeast corn belt.

We believe farmers are holding more than half of their harvest here in Jilin as they are in no rush to sell.

GOVERNMENT INTERVENTION?

China does not publish its inventory figures. But traders estimate that it has 10 million tonnes of stocks, which is less than a month of consumption and far less than the three months of consumption Beijing considers ideal.

Sinograin, which manages the state grains reserves, has offered to buy grain at about 10 percent to 20 percent below market to replenish stocks. Official data shows the government has sold about 55 million tonnes of reserves since 2009 to damp down local prices.

With farmers holding out for higher prices, sources said Sinograin has fallen well short of its plan to buy 10-12 million tonnes of corn by the end of January. They estimate it has not managed to secure any significant volume since the stockpiling campaign started in mid-December.

The risk for industrial processors is that the government will step in, like it did in 2011, and order them to stop buying to make way for state reserve purchases.

Aware of its longer-term import needs, China is increasing its supply sources, having relied on U.S. corn imports so far.

It signed a trade pact earlier this month with Argentina, the world's second-largest exporter, and suppliers in the Black Sea grain belt are looking at sales to China for the first time.

China is a tough market, we have not sold anything to it as yet, but there may be opportunity in the future, said Andrew Druzyaka, an official of the State Food and Grain Corp of Ukraine, at a conference in Singapore last month.

APPETITE

China is widely expected to dominate the global corn trade in the years ahead after becoming a net importer just three years ago. Many analysts see the rise in corn imports mirroring the quick rise in soy imports that have made China the top soy importer.

Imports of 3.77 million tonnes of corn in 2011 were the highest since 1993-1994. China will quadruple its purchases of corn, the U.S. agriculture department said in a 10-year outlook.

China's grain output is failing to keep pace with demand because of the rapid expansion of its livestock industry, which is quickly turning from backyard farms to an organized industry of large modern complexes that require more corn to ensure steady supplies.

To keep pace, the country's largest corn consumer, New Hope Group, says Beijing should free up imports of grain for animals and redefine the country's grain security policy by only placing restrictions on imports for human consumption.

(Editing by Neil Fullick and Simon Webb)