China has rejected five batches of U.S. corn tainted with a genetically-modified strain not yet approved by its agriculture ministry, a move that could discourage imports amid a growing domestic supply surplus.
Traders said the spectre of further rejections could prompt a sharp decline in new Chinese orders for U.S. corn, dragging on global prices that have already dropped around 40 percent this year.
Shipments totalling 120,642 tonnes - the biggest ever grain volume to be turned away from China's ports - were found to contain the unapproved insect-resistant MIR 162 variety of corn, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) said on its website (www.aqsiq.gov.cn).
The bureau also said it had told the United States to improve its inspection procedures to ensure that it complied with Chinese quality standards.
The total volume did not include a cargo of about 60,000 tonnes that was turned away last month, it said.
"With the latest discovery, buyers and sellers are likely to be increasingly cautious about placing new orders while shipments are in danger of being rejected," ANZ Bank said in a note.
Nearly 2 million tonnes of U.S. corn are currently on their way to China, and may face stringent testing for MIR 162, which Beijing has not approved for import but has been in the U.S. supply chain since 2011. The strain is already shipped to Japan, South Korea, Russia and even the European Union, which is notoriously slow in approving GMO crop varieties.
With domestic prices eroded by a corn supply glut, the authorities may be inspecting cargoes more closely to reduce import volumes, some analysts suggested.
"To some extent, there is a link to the domestic supply surplus - these are the rules of the game," said an industry analyst with a government-linked think-tank, who declined to be identified.
"We believe future incoming cargoes will face strict inspection."
AQSIQ declined to comment.
The U.S. supplied nearly 94 percent of China's corn imports in the first 10 months of 2013.
In the long run, China is expected to increase corn imports as the country urbanises and demand for meat and dairy products rises, with the nation prioritising staple grains such as rice and wheat.
But China is expecting a record corn harvest this year, and demand has also been hit by a series of food safety scares early in the year, which reduced meat and poultry consumption and slashed the use of corn feed.
"Domestic firms may be scared away from the (import) market due to the (GMO) issue, which will support domestic corn prices in the south," said Feng Lichen, senior analyst with an industry portal (www.yumi.com).
Beijing has promised to stockpile the domestic harvest in the growing area of the northeast as it seeks to shore up domestic prices and boost farmer incomes.
Domestic buyers are unlikely to be especially inconvenienced by any delays brought about by the decision to reject the U.S. cargoes.
Following adjustments made to import agreements between the U.S. and China last year, U.S. exporters are now deemed liable for any losses caused by problematic or unapproved cargoes, analysts said. Previously, the buyer was held completely responsible.
As well as the 2 million tonnes of U.S. corn currently on its way, there are still another 3 million tonnes bought by China that have not yet been dispatched. Buyers might also welcome the opportunity to slow deliveries in hope that domestic prices might recover, boosting their margins if they re-sell locally.
"We saw it in cotton a few years ago - you get a sharp drop in prices and it is not beyond the realms of possibility that buyers will want to be a little more picky on specifications and use any excuse to knock back or renegotiate a cargo," said ANZ's senior agriculture analyst, Paul Deane.
"There's probably not a lot of urgency to be importing a lot of corn at the moment," he added.