Why did the domestic corn rally suddenly hit the brakes?
Do you remember that when domestic corn market prices kept rising in November, we could not help but wonder whether corn's “spring” had arrived early, but after entering December this rally suddenly took a “sharp turn”, with prices in most regions stopping their rise and falling, especially in the North China and Huang-Huai production areas where the previous gains had been swiftest, the declines were most pronounced. We believe the speed of the turn in the domestic corn market was both unexpected and entirely reasonable. Below, the author will offer the following analysis based on relevant market information, for reference only.
Domestic corn market prices turn downward
⟦NL> First, looking at the Northeast production area, since entering December, because of generally strict quality inspections of temporary storage corn, the volume of temporary storage purchases from December 1 to December 5 was noticeably lower than in the previous period, the pace of temporary storage purchases slowed, and prices in the Northeast production area weakened slightly, but because farmers in some areas were reluctant to sell and temporary storage provided support, market prices showed strong resistance to declines. In addition, falling prices narrowed traders' profit margins, and their purchasing enthusiasm declined accordingly, making traders cautious in their operations and more inclined to wait and see. As of now, the purchase price of third-grade corn with 14.5% moisture at a corn deep-processing enterprise in Qinggang, Heilongjiang is 1760 yuan/tonne, down 10 yuan/tonne from the weekend; the purchase price in Songyuan, Jilin is 1920 yuan/tonne, stable from the weekend; the purchase price in Shenyang, Liaoning is 1960 yuan/tonne, stable from the weekend; the purchase price in Chifeng, Inner Mongolia is 1920 yuan/tonne, stable from the weekend. Overall, prices in the Northeast are firm, and prices for better-quality corn remain relatively strong.
Second, looking at the North China production area, since December, because of improved weather, corn deliveries in North China recovered quickly and the volume arriving at enterprises increased, but downstream demand failed to absorb it, and the market pattern shifted again from a phase of tightening supply to one of supply exceeding demand, with prices also falling reasonably as the market expected. As of now, the ex-factory price of third-grade corn with 14.5% moisture at deep-processing enterprises in Weifang, Shandong is 1900-1950 yuan/tonne, down 40-50 yuan/tonne from the weekend; the ex-factory price in Shijiazhuang, Hebei is 1740-1770 yuan/tonne, basically flat from the weekend. Since last Friday, corn prices in North China have cumulatively fallen 50-80 yuan/tonne, and in the short term farmers' grain sales will increase, so corn prices will continue to come under pressure.
Finally, turning to the North and South ports, this week arrivals at northern ports declined, traders purchased cautiously, and corn prices fell slightly. As of now, the mainstream purchase price of corn at Jinzhou Port is 2040-2045 yuan/tonne, down 10-15 yuan/tonne from the weekend; the arrival price of Northeast corn with 15% moisture and mold content within 3% at Guangdong ports is around 2180 yuan/tonne, down 10-20 yuan/tonne from the weekend. Corn prices in the Guangdong area moved lower mainly because grain-using enterprises in Guangdong were not active in purchasing; although corn inventories at Guangdong ports were relatively low, there was still selling pressure. In addition, the significant decline in North China corn prices was transmitted to the Guangdong area, pulling corn prices down.
Northeast temporary storage corn purchase progress slows
Statistics show that as of December 10, cumulative temporary storage corn purchases in the Northeast totaled 31.9 million tonnes, of which Inner Mongolia accounted for a cumulative 5.14 million tonnes (1.18 million tonnes this period), Liaoning a cumulative 690,000 tonnes (260,000 tonnes this period), Jilin a cumulative 6.86 million tonnes (1.23 million this period), and Heilongjiang a cumulative 19.21 million tonnes (2.53 million tonnes this period). The 5-day cumulative temporary storage corn purchase volume in the Northeast was 5.2 million tonnes, noticeably lower than the November high of 6 million tonnes (but higher than the previous period's 3 million tonnes). Market analysts believe there are two main reasons for this fluctuation: first, temporary storage corn purchase standards have become stricter, and some grain traders' earlier stockpiles cannot enter temporary storage; second, this week's heavy snow in the Northeast was unfavorable for corn coming to market, and combined with some farmers being more reluctant to sell, new grain market arrivals decreased. According to feedback from corn deep-processing enterprises in Jilin Province, corn purchase volumes fell over the past two days, and for a few enterprises with excessively low inventories, purchase volumes did not increase noticeably after they raised purchase prices, with one large corn deep-processing enterprise in Siping, Jilin seeing purchase volumes drop from more than 5000 tonnes on the 8th to more than 3000 tonnes on the 9th. The decline in purchase volume was mainly because farmers sold less grain: on the one hand there was a certain reluctance to sell, and on the other hand widespread snowfall in Jilin Province over the past two days affected farmers' grain sales and logistics.
Selling-off rumors affect market psychology
In the past two days, news about Sinograin selling off and emptying corn entered the market. The news showed that sales of old grain are about to begin, and about 3 million tonnes of old grain from 2012, the longest-stored, will be sold in a targeted way to deep-processing enterprises, at a sales price 500 yuan/tonne lower than this year's temporary storage purchase price. In addition, old grain from 2013 also faces the possibility of flowing into the market at reduced prices, thereby easing the pressure of the enormous inventory. In fact, as soon as the news came out it did have an impact on the market, and this was also one factor leading to the recent price decline, causing Dalian corn futures prices to fall sharply, with the main 1609 contract dropping 25 points to 1738 yuan/tonne. Spot market psychology fluctuated as a result, and the speculation triggered by this about later national policy and whether the state can carry out continuous selling-off still affects the market trend, though with temporary storage purchases providing support, the probability of a sharp fall in corn prices is also relatively small. Survey data from institutions show that farmers' grain-selling progress in the Liaoning-Jilin area varies and is currently relatively slow overall. As of the end of November, farmers' grain-selling progress in Liaoning was relatively fast, at 40%-50%, while overall grain-selling progress in the Jilin area was less than 20%, and grain-selling progress in the Heilongjiang area was relatively fast overall, at more than 30%. For the North China area, December to January of the following year is generally the peak grain-selling period, and with large quantities of dry grain coming to market, future market prices will again face downward adjustment.
Domestic corn output hits a record high
According to the 2015 grain output announcement released by the National Bureau of Statistics, the data show that in 2015 the national grain sown area was 113340.5 thousand hectares, an increase of 617.9 thousand hectares over 2014, a gain of 0.5%; the national grain yield per unit area was 5482.9 kg/hectare, an increase of 97.8 kg/hectare over 2014, a gain of 1.8%; and the national total grain output was 62143.5 million tonnes, an increase of 1440.8 million tonnes over 2014, a gain of 2.4%. Among this: in 2015 the national corn sown area was 38116.6 thousand hectares, an increase of 1040.5 thousand hectares over the previous year, up 2.8%; the yield per unit area was 5891.9 kg/hectare, an increase of 74.9 kg/hectare over the previous year, up 1.3%; and the national total corn output reached 2.2458 billion tonnes, an increase of 8.91 million tonnes over the previous year, up 4.1%. Domestic corn output hit a record high.
⟦NL< Taken together, the recent decline in domestic corn prices seems to be the inevitable result of market operation. Although as the Spring Festival approaches, enterprises' stockpiling will begin and may provide some boost to the market, there is still a certain risk for corn prices in the Northeast and North China production areas to exceed the 2000 yuan/tonne level. In the short term, rain and snow weather and policy rumors will continue to affect the market, and with a lack of demand support, the downward trend in corn prices will be hard to reverse. In the future, close attention still needs to be paid to the progress of temporary storage purchases and whether related policy rumor information can be confirmed.
Selling-off rumors affect market psychology
In the past two days, news about Sinograin selling off and emptying corn entered the market. The news showed that sales of old grain are about to begin, and about 3 million tonnes of old grain from 2012, the longest-stored, will be sold in a targeted way to deep-processing enterprises, at a sales price 500 yuan/tonne lower than this year's temporary storage purchase price. In addition, old grain from 2013 also faces the possibility of flowing into the market at reduced prices, thereby easing the pressure of the enormous inventory. In fact, as soon as the news came out it did have an impact on the market, and this was also one factor leading to the recent price decline, causing Dalian corn futures prices to fall sharply, with the main 1609 contract dropping 25 points to 1738 yuan/tonne. Spot market psychology fluctuated as a result, and the speculation triggered by this about later national policy and whether the state can carry out continuous selling-off still affects the market trend, though with temporary storage purchases providing support, the probability of a sharp fall in corn prices is also relatively small. Survey data from institutions show that farmers' grain-selling progress in the Liaoning-Jilin area varies and is currently relatively slow overall. As of the end of November, farmers' grain-selling progress in Liaoning was relatively fast, at 40%-50%, while overall grain-selling progress in the Jilin area was less than 20%, and grain-selling progress in the Heilongjiang area was relatively fast overall, at more than 30%. For the North China area, December to January of the following year is generally the peak grain-selling period, and with large quantities of dry grain coming to market, future market prices will again face downward adjustment.
Domestic corn output hits a record high
According to the 2015 grain output announcement released by the National Bureau of Statistics, the data show that in 2015 the national grain sown area was 113340.5 thousand hectares, an increase of 617.9 thousand hectares over 2014, a gain of 0.5%; the national grain yield per unit area was 5482.9 kg/hectare, an increase of 97.8 kg/hectare over 2014, a gain of 1.8%; and the national total grain output was 62143.5 million tonnes, an increase of 1440.8 million tonnes over 2014, a gain of 2.4%. Among this: in 2015 the national corn sown area was 38116.6 thousand hectares, an increase of 1040.5 thousand hectares over the previous year, up 2.8%; the yield per unit area was 5891.9 kg/hectare, an increase of 74.9 kg/hectare over the previous year, up 1.3%; and the national total corn output reached 2.2458 billion tonnes, an increase of 8.91 million tonnes over the previous year, up 4.1%. Domestic corn output hit a record high.
Taken together, the recent decline in domestic corn prices seems to be the inevitable result of market operation. Although as the Spring Festival approaches, enterprises' stockpiling will begin and may provide some boost to the market, there is still a certain risk for corn prices in the Northeast and North China production areas to exceed the 2000 yuan/tonne level. In the short term, rain and snow weather and policy rumors will continue to affect the market, and with a lack of demand support, the downward trend in corn prices will be hard to reverse. In the future, close attention still needs to be paid to the progress of temporary storage purchases and whether related policy rumor information can be confirmed.