In a deal arranged by Cargill, China is selling 89,500 tonnes of corn to South Korea at prices below what was believed to be the recent threshold for Chinese corn exports.

South Korean trading sources said the C&F prices for the deal were between $108 and $111 per tonne for January delivery.

Foreign traders in China considered the prices to be highly competitive.

"On an FOB basis, the prices are just about $100," a trader said.

The deal knocked down the belief that China would not cut prices below $105 to move its stockpiles of corn, he said.

The $105 price tag took hold after China's October sale to trading companies of at least 500,000 tonnes of corn at that level for deliveries through March.

China was known to make sales whenever world prices spiked up, traders said.

Talk of an imminent Korean corn deal has been circulating amongtraders since early this month, ahead of the current visit to China by South Korean president Kim Dae-jung.

"We expected that there would be some government-to-government deal involving favourable credit terms," a trader said.

Kim arrived in Beijing on Wednesday for an official visit.

South Korean sources said the Bank of China was expected to announce a two-year, $138-million export credit to South Korean corn importers through the state-run Korea Development Bank.

"South Korea should be a natural target for Chinese corn exports," said a source at China National Cereals, Oils and Foodstuff Import and Export Corp.

Chinese corn exports had the advantage of being flexible in size and choice of delivery point, he said.

"US corn appears cheap at about $85 a tonne," he said. "But it is FOB Gulf of Mexico and shipped in large cargo size."

In contrast, Chinese corn could be delivered to secondary Korean ports close to consuming areas and in convenient batches, he said.

China's corn exports in thefirst nine months of this year fell to 3.46 million tonnes, down 11.3 per cent from the same period in 1997, according to Chinese customs data.

Exports of corn, unlike soybeans, are tightly controlled by the government and the slide in exports so far this year has been blamed by official media on weak demand in other Asian countries due to the regional Financial crisis.

Good harvests in major corn producing countries such as the United States and Argentina led to falling world corn prices, which also hindered Chinese corn exports, traders said.

"Price is the determining factor," a foreign trader said. "If China can be flexible on prices, it can sell more corn."