The corn market situation is relatively complex, with growing uncertainty

According to past convention, after entering June, domestic corn prices would continue to rise, and market purchasing and sales activities would also be very active, but the current domestic corn market situation is somewhat abnormal, mainly manifested in the weak momentum of corn price increases, market circulation and purchasing and sales activities basically at a standstill, and state reserve corn urgently needing to be handled due to its large quantity and poor quality. Why is the domestic corn market situation so complex? What changes will occur in the corn market later?

“Purchasing corn from Northeast China and selling it to southern regions doesn't work now. No one will do a losing business. Many traders have shifted their main business to dealing in imported corn, sorghum, DDGS and barley.” Guangzhou corn trader Liu Benchuang told the Futures Daily reporter that after years of government-led large-scale stockpiling, the domestic corn market no longer has much room for survival for traders. Since the vast majority of grain sources are in the hands of the government, the free circulation of corn in the market has basically stopped. In addition, state reserve corn is large in quantity, poor in quality and high in warehouse-release price, so many traders have had to withdraw from the business of domestic Northeast China corn and instead focus their main energy on dealing in imported corn and other varieties.

According to the reporter's understanding, since the new corn was listed last year up to now, the government-led purchase in Northeast China has accumulated about 83 million tons of corn. Adding the previously purchased 70 million tons of corn produced in Northeast China in 2013, this has resulted in a very small circulation volume of Northeast China-produced corn on the market. Grain-using enterprises that need Northeast China-produced corn can only complete their procurement by participating in auctions of state reserve corn. However, because some state reserve corn is of poor quality and the warehouse-release costs are also relatively high, although some regions provide subsidies to enterprises purchasing state reserve corn, it still cannot meet the procurement requirements of grain-using enterprises. Some grain-using enterprises have turned to purchasing corn produced in inland areas and imported corn, while some have begun using imported sorghum, barley and others to replace domestic corn. Ultimately, this has led to sluggish demand for domestic corn and poor circulation, and market transaction prices and volumes have naturally continued to decline.

Comparing current domestic corn prices in production and sales areas, it can be found that in recent years the pattern of “transporting grain from the north to the south” in the corn market has undergone major changes. The phenomenon of corn prices in production and sales areas being equal or even inverted frequently occurs, making the domestic corn market increasingly complex. Apart from being greatly related to the market price distortion caused by government-led large-scale corn stockpiling, this is also greatly related to the fact that in the past two years more and more high-quality and low-priced imported corn, sorghum, barley and others have squeezed out the traditional sales market for domestic corn. According to estimates by industry professionals, this year China's total imports of corn, sorghum, DDGS and barley are around 25 million tons. In addition, the prices of protein feed raw materials such as soybean meal and rapeseed meal are currently at historical lows, and their substitution for corn is also quite obvious, which has also reduced the activity level of purchasing and sales in the corn market.

Data released by relevant departments on the auction transactions of Northeast temporary storage corn show that since the auction activities started in early May this year, the transaction rate has continued to decline, and grain-using enterprises have become increasingly less interested in participating in state reserve corn auctions. Among these factors, in addition to the poor quality and high price of state reserve corn affecting the procurement enthusiasm of grain-using enterprises, the backlog and falling prices of downstream corn products also leave grain-using enterprises “willing but unable” to purchase state reserve corn.

Xi Jingtao, general manager of the Hengshui Heping Grain Depot in Hebei, believes that the domestic corn market is now divided into three major parts: first, the southern corn market is dominated by imported corn, sorghum and others; second, the inland corn market is controlled by corn produced in Shandong, Hebei and Henan; third, the corn market in Northeast China is controlled by state reserve corn. Because the domestic corn market is divided by different market forces, combined with different customer needs among regions, different market supply sources, and restrictions on transportation conditions, the domestic corn market is now chaotic and disorderly. In addition, what should draw market attention is that Northeast China-produced corn has already been transferred across provinces to warehouses throughout the country. Because these corn stocks are difficult to store safely and many regions are short of warehouse capacity, it is estimated that this part of state reserve corn may be released from warehouses at any time. At that time, the supply pressure on the domestic corn market will certainly increase, and market uncertainty factors will also increase.