The United Nations cuts its forecast for China's corn production by 2%.

Sina U. S. stock news Beijing time 27 FT reported that the United Nations Food and Agriculture Organization (FAO) is preparing to reduce its forecast of China's corn yield for the current crop year by 2%, due to the severe drought in northern China.

The agency had expected China's corn production to reach 226 million tons in 2015-16, up 5 per cent from a year earlier, and next week it will announce that total production is expected to fall to 221 million tons.

The cut will ease some of the pressure on Beijing, as agricultural subsidies continue to inflate China's corn stocks.

However, the United Nations Food and Agriculture Organization said the decline in production had not affected stocks because lower feed and industrial use meant that corn consumption was also lower.

In fact, the group expects China's corn reserves to rise 5 per cent to 103 million tonnes by the end of the current crop year.

Abdolreza Abbassian, senior economist at the Food and Agriculture Organization of the United Nations, said the rising level of corn stocks had become "a major policy issue" for Beijing. They know it's not a permanent solution, but it's not going to change right away. "

Analysts point out that the Chinese government's purchases of grain and cotton are the root cause of its inventory glut. Government purchase prices encouraged domestic production but spurred a surge in imports as food and feed producers turned to cheaper overseas raw materials.

Ample production in major corn growers means that benchmark corn prices are currently between $3.50 and $3.60 a bushel, the lowest level not seen in five years, in contrast to a record high of nearly $8.50 a bushel set in 2012. The surge in corn prices in China has also raised international prices for other grains such as sorghum and barley as Chinese feed producers and livestock breeders turn to cheaper feed.

China has cut government purchase prices for corn in the current crop year, hoping to reduce reserves.

The Chinese government also issued guidelines this month to reduce the sown area in some marginal areas by more than 3.3 million hectares by 2020, 9 per cent lower than the current level.

The International Grain Council (International Grains Council) says harvests in marginal areas are usually lower than in major producing areas.

Nathan Kemp, an analyst at the International Grain Council, said: "the overall annual output decline may be limited to about 13 million tonnes, but this may be partially offset by continued improvement in harvests in other parts of the country."