* China says rejects nearly 121,000 T of U.S. corn
* Biggest-ever grain volume to be turned away from Chineseports
* Could prompt sharp decline in new orders
* Some analysts suggest govt may want to curb imports amidsupply glut
By Niu Shuping and David Stanway
BEIJING, Dec 4 (Reuters) - China has rejected five batchesof U.S. corn tainted with a genetically-modified strain not yetapproved by its agriculture ministry, a move that coulddiscourage imports amid a growing domestic supply surplus.
Traders said the spectre of further rejections could prompta sharp decline in new Chinese orders for U.S. corn, dragging onglobal prices that have already dropped around 40 percentthis year.
Shipments totalling 120,642 tonnes - the biggest ever grainvolume to be turned away from China's ports - were found tocontain the unapproved insect-resistant MIR 162 variety of corn,the General Administration of Quality Supervision, Inspectionand Quarantine (AQSIQ) said on its website on Wednesday(www.aqsiq.gov.cn).
The bureau also said it had told the United States toimprove its inspection procedures to ensure that it compliedwith Chinese quality standards.
The total volume did not include a cargo of about 60,000tonnes that was turned away last month, it said.
"With the latest discovery, buyers and sellers are likely tobe increasingly cautious about placing new orders whileshipments are in danger of being rejected," ANZ Bank said in anote.
Traders had said on Tuesday that Syngenta AG's MIR162, also known as Agrisure Viptera, had been found in someshipments to China, one of the world's largest corn importers.
The latest GMO discoveries were made at ports in Fuzhou,Shenzhen and Shandong, AQSIQ said.
Nearly 2 million tonnes of U.S. corn are currently on theirway to China, and may face stringent testing for MIR 162, whichBeijing 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 isnotoriously slow in approving GMO crop varieties.
With domestic prices eroded by a corn supply glut, theauthorities may be inspecting cargoes more closely to reduceimport volumes, some analysts suggested.
"To some extent, there is a link to the domestic supplysurplus - these are the rules of the game," said an industryanalyst with a government-linked think-tank, who declined to beidentified.
"We believe future incoming cargoes will face strictinspection."
AQSIQ declined to comment.
The move has already slowed the country's imports, and somecargoes may have to be re-directed to Japan or South Korea,analysts said.
The U.S. supplied nearly 94 percent of China's corn importsin the first 10 months of 2013.
In the long run, China is expected to increase corn importsas the country urbanises and demand for meat and dairy productsrises, with the nation prioritising staple grains such as riceand wheat.
But China is expecting a record corn harvest this year, anddemand has also been hit by a series of food safety scares earlyin the year, which reduced meat and poultry consumption andslashed the use of corn feed.
"Domestic firms may be scared away from the (import) marketdue to the (GMO) issue, which will support domestic corn pricesin the south," said Feng Lichen, senior analyst with an industryportal (www.yumi.com).
Beijing has promised to stockpile the domestic harvest inthe growing area of the northeast as it seeks to shore updomestic prices and boost farmer incomes.
Domestic buyers are unlikely to be especially inconveniencedby any delays brought about by the decision to reject the U.S.cargoes.
Following adjustments made to import agreements between theU.S. and China last year, U.S. exporters are now deemed liablefor any losses caused by problematic or unapproved cargoes,analysts said. Previously, the buyer was held completelyresponsible.
As well as the 2 million tonnes of U.S. corn currently onits way, there are still another 3 million tonnes bought byChina that have not yet been dispatched. Buyers might alsowelcome the opportunity to slow deliveries in hope that domesticprices might recover, boosting their margins if they re-selllocally.
"We saw it in cotton a few years ago - you get a sharp dropin prices and it is not beyond the realms of possibility thatbuyers will want to be a little more picky on specifications anduse any excuse to knock back or renegotiate a cargo," said ANZ'ssenior agriculture analyst, Paul Deane.
"There's probably not a lot of urgency to be importing a lotof corn at the moment," he added.