Recent industry reports suggest that China's corn production in 2011/12 could be as much as 14 percent lower than current official estimates, according to Capital Economics.
As a result, China's imports are likely to be considerably higher than current U.S. Department of Agriculture (USDA) forecasts, which would squeeze global corn supplies further and put upward pressure on prices, says Capital Economics.
Despite reducing global end stocks by as much as 4 million tons since the beginning of 2012, many analysts consider the USDA's latest global corn production estimate to be optimistic. China's actual production is likely to be between 168-185 million tons, which is 5 to 15 percent lower than the USDA's current forecast of 191 million tons.
Many analysts believe that corn inventory levels in China's state reserves are quite low, which is around 10 to 12 million tons, notes Capital Economics.
Though the USDA estimates that China will import 4 million tons of corn in 2011/12, twice the amount it imported a year earlier, yet many analysts believe that actual imports could be even higher, around 8 million tons. This in turn would create additional pressure on global supplies, causing prices to strengthen further.
China sold around 55 million tons in total from 2009-11. China is reported to have purchased in total approximately 47 million tons in 2009 and 2011.
As a result, Capital Economics estimates the current inventory level at China's state reserves to be between 13.8 million to 22.8 million tons, which is still higher than the latest industry estimates.
Even if China's total corn imports increase to 9.5 million tons in 2011/12, the global stock-to-use ratio would decrease marginally, from 13 percent to 12 percents points out Capital Economics.
Capital Economics has forecast that prices will fall to 585 cents per bushel from current levels of around 650 cents by the end of 2012.