Tue, Feb 22, 2011 page11

• South Korea plans on building grain reserve

  MOVE TO HEDGE: The country will buy 552,000 tonnes of corn, wheat and soybeans for an estimated US$180.2 million, but traders warn it may not get the best prices

  • Reuters, SEOUL
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  South Korea is looking to build a strategic grain reserve and is planning to buy cargoes of corn and other staples, joining similar efforts by other Asian nations worried about high food prices and social unrest.

  The reserve would be for grains other than rice, such as wheat and corn, and total about 12 percent of annual consumption.

  Spiraling food prices, which have leapt to two-year highs, have spooked Asian governments, which fear a repeat of widespread unrest in 2008 when fears of grain shortages sent prices soaring and unleashed panic buying.

  Prices of US corn, soybeans and wheat have soared since last year because of bad weather damaging crops and rising demand from China and India. This has created problems for South Korea, the world’s third-largest corn buyer.

  Agriculture ministry sources said yesterday that Asia’s No.4 economy was seeking to buy 552,000 tonnes of corn, wheat and soybeans this year at basis prices over the Chicago Board of Trade futures with US grain sellers.

  The cost was estimated at about 200 billion won (US$180.2 million), but excludes storage charges, they added.

  “This move is to hedge,” one agriculture ministry source said, adding that the grain procurement would likely be in the US — the main grain exporter to South Korea.

  Another source said the amount was based on the UN Food and Agriculture Organisation’s recommendation of stockpiling 12 to 17 percent of annual consumption.

  Bangladesh is importing 200,000 tonnes of Thai parboiled rice in a government-to-government deal, sources said last week, part of a plan it announced last month to triple imports to boost stockpiles.

  Indonesia last month surprised the market by buying 820,000 tonnes of Thai rice, nearly five times the volume initially sought. The country this month also announced it would boost rice stockpiles to 2 million tonnes from 1.5 million tonnes.

  Sources at the South Korean ministries of agriculture and finance said the detailed grain procurement and storage plan could be finalized in March and they were looking at various options, such as building or borrowing storage sites in South Korea.

  The government was also looking at a third option. It would only import grains if prices rally after signing futures contracts as a way to hedge against higher prices.

  However, if grain prices remained flat, the government could resell the grains to a third party rather than taking delivery.

  Local media reported on Saturday the country’s first-ever move to stockpile grains other than rice and equivalent to one-and-a-half months’ consumption. Media said the cost was about 10 billion won.

  Agriculture ministry sources said the amount was the estimated deposit cost of the 200 billion won of grain purchases.

  The government and industry sources, however, argued that it might be hard for the government to maintain such large grain inventories because of management costs and quality issues.

  South Korea produces only 5 percent of food grains, excluding rice.

  While the country imports some rice, any move to expand imports would be politically sensitive because the country has a production surplus and persistently weak rice prices.

  Some private firms and traders, however, say the government’s lack of experience in buying on the international market could mean uncompetitive purchase prices.

  “I doubt who among private firms would be willing to buy grains procured by the government, which might be more costly than their own imports as private firms usually have more expertise in such business,” a Seoul-based grain trader said.
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