China, one of the world's largest corn importers, has rejected a cargo of the grain from the United States as it contained a genetically modified variety that has not been approved by Beijing, traders said.
The discovery of Syngenta AG's Agrisure Viptera corn in the shipment dragged on global prices and unnerved some Chinese buyers as it raised the spectre of other rejections.
But most traders said these were unlikely and that the move would not have much long-term impact on flows of grain to China from the U.S. They said the strain, also known as MIR 162, is set to be approved by China soon and is already shipped to destinations such as top corn importer Japan, the European Union and Mexico.
"It's confirmed. It's one cargo and MIR 162 was the problem," said one source, who asked not to be identified.
The GMO discovery comes at a time of soaring U.S. corn imports by China as Beijing grapples with record-high domestic corn prices and rising demand for food.
"It is a minor hiccup in what will otherwise be a smooth import process. They need our corn, they've got the orders already placed. We don't think this is the start of some long-term major disruption," said Rich Nelson, chief strategist with Allendale Inc, an Illinois-based research and analytical firm.
Even so, the news weighed on Chicago Board of Trade corn futures, with December corn hitting a three-year low.
Traders in China said the cargo of between 55,000 and 60,000 tonnes has already been unloaded at the port of Shekou in the southern province of Guangdong. The buyer was a state-owned trading house and the shipment may have to be re-loaded for transport to Japan or South Korea, they said.
The local quarantine authority rejected the shipment after finding the unapproved GMO strain in samples, traders said. Shenzhen's quarantine bureau, which refused a U.S. corn cargo in 2010 after finding traces of unapproved GMO, declined to make immediate comment.
"We think it is an individual case. Not only corn, quarantine authorities have stepped up testing of fishmeal and wheat cargoes," said Li Qiang, chief analyst with influential private consultant firm, Shanghai JC Intelligence Co. Ltd. (JCI).
But a few feed mills were fretting that the move could presage a possible shift in government attitude towards curbing imports.
"We are worried. At this stage, we have to wait and see before making any judgement whether the government is sending a signal to the market that it does not want more imports or whether this is simply a quarantine issue," said one trading manager with a large animal feed mill in Guangdong.
Chinese feed mills have been aggressively buying U.S. corn since October to benefit from cheap prices due to a record U.S. harvest.
Domestic prices have typically been more than 20 percent higher than U.S corn this year as the government raised the price it pays for corn as part of its stockpiling system to support farmers.
China is expected to import a record 7 million tonnes of corn in the 2013/14 (Sept/Aug) marketing year, up from 5.23 million tonnes the previous year, according to the U.S. Department of Agriculture (USDA).
China is the world's No.3 corn importer after shifting from corn exports to net imports in 2010, with nearly all buying from the U.S.
"We do not think the rejected cargo has anything to do with the government looking to curb imports. China's overall strategy is to increase imports and it has to give the right signals to the world market," said an analyst with an official think-tank in Beijing.
"China's own production is unlikely to grow every year and its current large stocks are only temporary."
Agrisure Viptera, designed to offer enhanced protection against crop-damaging insects, is widely grown in the U.S. so traces of the grain may have been commingled with approved corn strains in a shipment to China, traders said.
"Syngenta is not aware of any such incident," said Paul Minehart, head of Corporate Communications-North America for Syngenta Corporation.
China already allows imports of 25 different GMO corn varieties and is considering adding other commonly cultivated varieties to the list, including Agrisure Viptera, which has been pending approval for about 18 months. It is expected to get the green light later this year or in 2014, according to traders.
A bulk corn shipment from Argentina was cleared for import earlier this year despite it containing traces of MIR 162.
The U.S. historically is the world's top supplier of corn, exporting between 10 and 20 percent of its harvest each year.