Low corn prices and severe oversupply benefit downstream industries such as cane sugar
China Securities Network News (trainee reporter Jin Jiajie) Since the second quarter of this year, corn prices have plunged all the way into a bear market. After the afternoon opening, the decline in the main corn futures contract 1605 continued to widen, with the price falling below 1800 yuan/ton. Compared with the highest price of 2500 yuan/ton in March this year, this contract has already fallen by nearly 30%. International agricultural products prices are also at a low point. As of press time, the price of corn on the US CBOT fell 0.26%, down 17% from the highest price in July this year.
Recently, similar agricultural products to corn have also weakened. In the morning, the main soybean meal contract 1601 fell 1.41%, and the main rapeseed meal contract 1601 also fell 0.72%. Eggs downstream have also followed corn prices lower. Recently, egg prices in some areas have fallen by more than a quarter compared with July. At midday today, the main egg contract 1601 fell 0.52%.
In September this year, the national temporary reserve listed purchase price for corn was reduced from 1.12 yuan/jin last year to 1 yuan/jin, the first cut in 7 years. The market supply of corn is severely excessive, and warehouse inventories are far higher than expected.
The reporter learned from relevant grain experts that this year's temporary reserve inventory may reach more than 50 million tons. Based on the temporary reserve volume and the approximate auction sales volume, the surplus from temporary reserve purchases is as much as 150 million tons. If purchases continue this year, the purchase volume will increase further; while domestic consumption is less than 200 million tons, so the annual surplus is roughly more than 50 million tons.
As November approaches and temporary reserve purchases begin, large quantities of corn from Northeast China are coming onto the market, but inventory is not being digested smoothly. On October 22, more than 1 million tons of corn in the national temporary reserve corn auction failed to sell at all, leaving a large backlog of inventory.
However, weak corn prices are good news for other corn deep-processing industries such as cane sugar. Industry insiders said that at present 55% of corn starch in the market is used to produce starch sugar. Falling corn prices will reduce fructose costs, raise industry profit margins, and promote downstream fructose consumption.
Guotai Junan futures researchers believe that because corn starch prices have fallen, the price gap between white sugar and starch sugar has continued to widen, and starch sugar has a substitution advantage. In addition, the decline in starch prices has gradually given domestic starch a price advantage for export, which may boost starch demand.
Relevant experts pointed out that a deep decline in corn prices will help raise the operating rate of corn deep-processing starch enterprises, but what should be paid more attention to is the market for their downstream products. China's starch production capacity is excessive, and the deep-processing industry has suffered serious losses this year, so the key still depends on whether exports can improve profitability or whether product innovation can be found. As an intermediate product, starch will also flow into the commodity market in the form of other products.
Under the pattern of corn oversupply, downstream deep-processing industries such as fuel ethanol may become a new way out for consuming inventory. Some futures analysts pointed out that rebuilding corn ethanol plants will help consume aged corn inventory, and higher output of cleaner ethanol will also help reduce pollution.