By Dominique Patton

By Dominique Patton

BEIJING (Reuters) - China has given approval to at least two companies to export corn, trading sources said, in a radical move by the world's No. 2 producer to cut its ballooning surplus and unleash more supply into a saturated global market.

In what could be the first bulk exports in a decade, the Chinese government has issued permits to two state-owned companies, top grains trader Cofco and major processor and trader Beidahuang, allowing them to sell grain abroad, the China-based sources who were not authorised to speak to the media said on Friday.

The green light was for around 2 million tonnes of corn to be exported by three state-owned companies, said one of the trading sources who had spoken to one of the exporters. A second source had spoken to a foreign company which is in discussions with one of the approved exporters.


A representative of China's commerce ministry said the permits were not its responsibility and directed questions to the state planner, the National Development and Reform Commission (NDRC).

The NDRC did not respond to requests for comment. A spokesman for COFCO did not answer his phone. A person reached at Beidahuang declined to comment.

The U.S. Trade Representative, which negotiates with foreign governments, told Reuters the move by China would not be surprising "given the high levels of domestic support China provides to its corn producers."

"China's overproduction of corn has created a growing stockpile of corn that appears to have reached unsustainable levels," agency spokesman Matt Swenson said. "Chinese exports could negatively impact corn prices just as U.S. farmers are harvesting their crops."

U.S. officials will monitor whether Chinese exports may be subsidized, a prospect the agency finds concerning, he said.

Traders and analysts said exports have been increasingly likely as China struggles with a massive grain surplus and prepares to harvest a bumper crop, its first in almost a decade without government price support.

Chinese corn prices <DCCv1> have slumped more than 20 percent in the past year and are expected to fall further towards international benchmarks.

Even if quantities are limited at first, sales abroad would spook major exporters, such as Brazil and the United States, increasing competition at a time when record harvests are predicted in many regions.

Five of the top 10 corn importers are in Asia, which may allow China to compete against the Americans and others with lower freight costs.

The potential sales would also come amid an intensifying spat between China and the United States over trade in everything from grains to aluminium.

On Sept. 13, the United States launched a challenge to China's price supports for domestic corn, wheat and rice at the World Trade Organization, charging that these disadvantaged U.S. exports.

China last exported significant volumes of corn in 2006/07, when it sold almost 5 million tonnes. It has since become an importer after a state stockpiling scheme pushed domestic prices way above the global market, stoking purchases of cheaper grain from overseas.

The policy has left a corn stockpile estimated at nearly 240 million tonnes - much of it poor quality due to its age - which Beijing is now struggling to offload after abandoning the program this year.

On top of that, China's crop of nearly 220 million tonnes is set to hit the market next month.


A Singapore-based trader told Reuters he had recently been approached by a Chinese exporter testing appetite for corn in neighbouring markets.

"To attract buyers they will have to offer lower prices than what they are getting from the Black Sea region and South America," said another trader in Singapore.

Chinese corn prices this week stood at around 1,400 yuan ($210) a tonne, down from about 1,650 yuan in mid-June.

Many expect prices to fall further as the harvesting gathers momentum next month.

"It is just a matter of time (until exports start) as prices are quite competitive," said a Singapore-based trading manager with an international agribusiness.

The government is also considering offering tax rebates of 13 percent to help make corn exports more competitive, said consultancy Shanghai JC Intelligence Co on its website without indicating the exact source of this information.

($1 = 6.6698 Chinese yuan renminbi)

(Additional reporting by Naveen Thukral in Singapore, David Lawder in Washington and Tom Polansek in Chicago; Editing by Martin Howell and Matthew Lewis)

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