Can the Temporary Corn Reserve Policy Become a Market Turning Point?

To date, the atmosphere of new grain coming onto the market in the domestic corn market is gradually intensifying, and its price can be described as “falling incessantly.” At the same time, although corn at southern ports and related imported grain inventories are now vastly different from two months ago, the current inventory decline is too late. With autumn grain about to come onto the market, the temporary reserve corn purchase policy is the “key point” determining the extent of the later decline.

Rumors of the Temporary Reserve Corn Purchase Policy Resurface

Recently, early-maturing corn varieties have come onto the market sporadically in Heishan, Liaoning, but moisture content is relatively high, and enterprises are not strongly willing to purchase. Traders are relatively active in selling old corn, but downstream enterprises have insufficient capacity to absorb it, purchasing and sales are sluggish, and corn prices continue to weaken. Some deep-processing enterprises have suspended purchases, among them Songyuan Cargill in Jilin Province suspended purchases, with a pre-suspension quote of 2,100 yuan/ton; COFCO Yushu suspended purchases, with a pre-suspension quote of 2,180 yuan/ton; COFCO Gongzhuling 2,220 yuan/ton, flat, third-grade quality, price quoted but no market; Meihe Fukang purchase quote 2,180 yuan/ton, flat, second grade, daily purchase volume about 3,000 tons; Jilin Alcohol purchase quote 2,100 yuan/ton, down 40 yuan/ton from last week, third grade, daily purchase volume about 2,000 tons.

Recently, a small amount of autumn-crop corn has come onto the market in domestic regions, while low-priced grain is still circulating in Jilin Province, thus having a certain impact on market prices, and enterprise quotes have been lowered while remaining stable. In addition, it is worth noting that rumors of the temporary reserve corn purchase policy in Northeast China have resurfaced. Based on third-grade grain sources in Jilin, the temporary reserve corn purchase price standard may be lowered to 1,950-2,000 yuan/ton, a clear decline from last year's level of 2,240 yuan/ton, below market expectations, but whether this market news is true still needs confirmation and close attention.

New and Old Corn Prices in North China Are Basically the Same

Since September, corn prices in North China and Northeast China have continued to slide, and some enterprises in North China have purchased new corn, with almost no price difference between new and old corn. As of now, the purchase price of 14% moisture second-grade corn by deep-processing enterprises in Weifang, Shandong is 2,130-2,160 yuan/ton, down 30 yuan/ton from the end of August; the purchase price of both new and old corn by deep-processing enterprises in Dezhou is 2,140 yuan/ton; the purchase price of both 14% moisture new and old corn by deep-processing enterprises in Qinhuangdao, Hebei is 1,980 yuan/ton, with old corn down 130 yuan/ton from the end of August. North China enterprises have continued to lower old corn prices, and for some enterprises new and old corn prices are basically the same. On the one hand, this adjustment of purchase prices is intended to make new corn fall into place as soon as possible; on the other hand, it is also because inventories are relatively large, making it difficult to purchase more corn.

Corn Prices at Northern Ports Continue to Slide

Along with the successive market arrival of new corn in Liaoning, pressure on the corn market at northern ports has increased, and prices have continued to slide. As of now, the purchase price of 14.5% moisture Liaoning-Jilin corn at Bayuquan Port in Liaoning is 2,200-2,240 yuan/ton, with a theoretical flat price of 2,250-2,290 yuan/ton, both down 60-70 yuan/ton from last week; the purchase price of 14.5% moisture Liaoning-Jilin corn at Jinzhou Port is 2,200-2,210 yuan/ton, with a theoretical flat price of 2,250-2,280 yuan/ton, both down 50-60 yuan/ton from last week. At present, a small number of traders are purchasing new-season corn, with mold content within 2%, moisture within 14.5%, and test weight above 690 g/L at a purchase price of 2,180-2,200 yuan/ton. The new corn mainly comes from western Liaoning, and its price is 20-40 yuan/ton lower than old-season corn.

Recently, the trade profit between northern and southern ports is about 30 yuan/ton, and the volume shipped southward from northern ports has increased somewhat. Last week the volume shipped southward was 171,000 tons, the highest value in the past 4 weeks. Although the pace of destocking at northern ports has accelerated somewhat, with new-season corn gradually coming onto the market, the sales pressure on old-season corn at ports is still relatively large. Under expectations that new-season corn prices are not favored, old-season corn still has room to decline in the future.

Price Gap Between High- and Low-Quality Corn at Guangdong Ports Widens

Since September, the price gap between high- and low-quality corn at Guangdong ports has continued to widen. As of now, the transaction price of 14.5% moisture high-quality Liaoning-Jilin corn at Shenzhen Port in Guangdong is 2,390-2,420 yuan/ton, down 40-50 yuan/ton from last week, while the price of lower-quality corn is 2,300-2,350 yuan/ton, down 80 yuan/ton from last week. The price gap between high- and low-quality corn is 70-90 yuan/ton. At present, a small amount of Hebei corn has arrived at the port, with a selling price of 2,300-2,350 yuan/ton. As the pressure from new corn coming onto the market gradually increases, it suppresses corn prices at Guangdong ports, but high-quality corn is more resistant to declines than lower-quality corn. As of September 9, domestic trade corn inventory at Guangdong ports was 294,000 tons, up 85,000 tons from last week, and foreign trade inventory was 153,000 tons, down 51,000 tons from last week. Total inventory at Guangdong ports was 447,000 tons, up 34,000 tons from last week. The corn imported and arriving at ports in August was the last batch of imported corn this year, and basically no imported corn will arrive at ports after September. Later, foreign trade corn inventory at Guangdong ports will continue to decline, and corn supply at ports will mainly rely on domestic trade inventory.

At present, there is only one month until corn from the main producing areas comes onto the market in concentrated volume. Market participants hold pessimistic expectations for new-season corn prices, while downstream demand has not changed significantly. The volume of imported miscellaneous grains arriving at ports in September is still relatively large. Later, corn prices at Guangdong ports will still run weakly, but feed enterprises have certain rigid demand for high-quality corn, and later the price gap between high-quality corn and lower-quality corn may continue to widen.

Domestic and International Corn Market Trends Diverge

Unlike the decline in the domestic corn market, international corn market prices have recently mostly risen, reversing the recent decline, mainly because the September supply and demand report released by the U.S. Department of Agriculture was favorable and the U.S. dollar exchange rate weakened. However, the global commodity market continues to fluctuate sharply, China's economic situation is worrisome, and the demand situation is poor, restraining the increase in feed grain prices. As of September 11, the December 2015 corn futures contract on the Chicago Board of Trade (CBOT) rose 24 cents from a week earlier to close at 387 cents/bushel; U.S. Gulf No. 2 yellow corn was quoted at 432.5 cents per bushel, up 28 cents from a week earlier, equivalent to about 170 USD per ton. The main market influencing factor was the monthly supply and demand report released by the U.S. Department of Agriculture. This report was favorable to corn prices because the USDA reduced U.S. corn production by less than market expectations. The 2015/16 global coarse grain supply forecast was lowered by 2.3 million tons, because the global corn production figure was lowered by 7.5 million tons, a decline larger than the 5.3 million ton increase in global barley production. The main reason for the downward revision of the global corn production figure was that the EU corn production figure was lowered by 4.3 million tons, and the U.S. corn production figure was lowered. The 2015/16 global corn ending stocks forecast was lowered by 5.4 million tons to 189.7 million tons, a decrease of 7.5 million tons from the previous year.

In summary, because expectations of lower prices for new-season corn before autumn grain comes onto the market are relatively strong, especially as the new-season temporary reserve corn “bearish” market signal has been somewhat released, the decline in port grain inventory and even the decline in feed enterprise inventory are natural seasonal phenomena, with limited support for the later domestic corn market. For grain-using enterprises, they can well maintain rolling replenishment while keeping safe inventories. For grain traders, they look forward even more to the early introduction of the new temporary reserve policy to end the current unpredictable downward trend.