China’s buying to keep US corn prices firm, stocks tight

Higher US corn prices unlikely to deter export demand

China’s high corn demand could be a long-term trend

New Delhi — China’s record purchases of US corn in the recent weeks are expected to further deplete US corn stocks, signaling corn prices will remain firm over the next few months, analysts said.

US corn prices, currently hovering at over seven-year highs of around $5.5 per bushel, could touch $6/bu in the near term on current, according to analysts. Prices could even reach the $7/bu mark if there is additional demand from China, reductions in US corn stocks or weather disruptions in South America.

However, on the lower end of the scale, US corn prices could find resistance at $4.70-$4.75/bu in the absence of any further tightness in US corn supply and demand, they added.

Higher corn buying from China has propelled global corn prices upwards. The March corn futures contract on the Chicago Board of Trade has gained more than 60% in the last six months to trade at $5.49/bu Feb. 3.

The contract rose nearly 50 cents/bu during week ended Jan. 29, as China made three big purchases of US corn during the week, of almost 6 million mt corn.

China’s demand outlook positive

China’s import demand for corn is expected to remain strong, fueled by high domestic prices, the need to restock grain reserves, and growth in feed consumption, the US Department of Agriculture’s Beijing attache said recently.

S&P Global Platts Analytics estimates China to have a 30 million mt “structural deficit” for corn in 2020-2021 (October-September) due to growing consumption.

The USDA’s official estimate for China’s 2020-21 corn imports stand at 17.5 million mt, while USDA’s Beijing attache estimates the number at 22 million mt. Market sources expect the USDA to officially raise its China’s corn import estimate closer to that of the attache in its February World Agricultural Supply and Demand Estimates, which is due to be published Feb. 9.

China, despite a tariff rate quota (TRQ) for corn imports of 7.2 million mt, has already imported 11.845 million mt of US corn in 2020-21, according to USDA.

“It remains unclear if the 65% out of quota duty was applied to imported corn or if additional TRQs were issued,” the USDA’s attache said.

In 2019-20, China imported just 7.6 million mt of US corn.

Further support for US corn prices came from the news that China is expected to buy 200 million gallons of US ethanol in the first half of 2021 and is looking for additional quantities.

The USDA’s attache also noted that there is speculation about China using a special TRQ to import US corn to meet its purchase commitments under the US-China Phase One Economic and Trade Agreement.

Some market participants believe that China’s corn purchases could suggest a long-term trend. “When China became net importer of crude oil, they never looked back and kept importing more and more and similarly with soybean. I think it could be the same thing with corn — they might never look back,” said Sal Gilbertie, president of grain trading firm Teucrium.

“While this year could be an exception as China’s corn production is estimated lower, I still think the uptrend in buying is going to stay,” he added.

China’s corn production this year was hit by two typhoons and an outbreak of fall armyworm in some regions.

Tightening corn supplies

Shrinking corn stocks and concerns over tightening supplies globally are also providing support to prices.

S&P Global Platts Analytics projects US ending stocks for 2020-21 at 1.4 billion bushels, which is 150 million bushels lower than the USDA’s estimate of 1.5 billion bushels. Platts Analytics estimates US corn exports at 2.7 billion bushels, compared to USDA’s 2.55 billion bushels.

Market participants are expecting USDA to lower US corn carryout and raise its US corn export estimate factoring in China large corn imports.

Globally as well, corn ending stock estimates for 2020-21 have shrunk over the last few months owing to lower production estimates in the US and Ukraine.

Ukraine, typically the largest corn supplier to China, suffered severe drought during the 2020-21 growing season, which has lowered the country’s corn production by almost 18% on the year, according to Platts Analytics. Ukraine has limited corn exports in 2020-2021 to 24 million mt, down from 29 million mt the previous year.

In Brazil, the late soybean harvest is likely to delay the planting of Brazil’s second corn crop, which could dent current estimates of a record production of 109 million mt for the country and impact export projections, analysts said.

Argentina has put a daily export cap of 30,000 mt/day on its corn exports, while Russia has also put export tax of Eur15/mt on corn effective from Mar 15, 2021.

“At least for the next few months, the US is likely to remain the most competitive corn supplier globally and that should shield prices from any prospective downslide,” said Teucrium’s Gilbertie.

SPGlobal

Tags: China, corn, US, corn price