China's booming starch industry is raising fears of a squeeze in domestic corn supplies, despite a record harvest, which has prompted Beijing to restrict exports of the grain.
And as corn prices on the Chicago Board of Trade hover close to its highest levels in a decade, slowing sales from China, a leading supplier to Asian markets in recent years would only add fuel to a market already on fire.
Many processing plants are under construction in China's corn-producing northeast as local authorities encourage the industry to add value to their farm products, and at the same time create jobs for millions of farmers.
But some are worried that the starch boom was similar to the one seen in the domestic soybean industry 3 to 5 years ago when the crushing industry expanded at an extremely past pace, only to end up having twice the capacity, compared with what it needs.
"Many are still under construction. But we will see new players coming into the market next year. In the future, it may become difficult to purchase enough of the raw material," said an official at a starch company in China.
China's corn processing industry, including the ethanol and sweetener sector, consumed 26.5 million tonnes of corn in the year ending September 30, according to official data.
But some are worried that in 3-5 years, corn-processing capacity might reach 35-40 million tonnes in the northeast alone, which contributes more than 40 percent to the total corn output. This could make it tough for feed millers in the south, who normally depend on supplies from that region.
Liu Lieu at the China Starch Industry Association told Reuters that 2006 starch output would rise to 13 million tonnes, from 11 million last year, helped by high world sugar prices that have encouraged the use of lower-priced corn sweeteners.
The country's corn sweetener production would jump by 19 percent this year to 5 million tonnes, officials estimated. "The industry has made very good profits from starch products in the past two years, spurring its rapid expansion," said Liu.