Corn prices have already entered a long, drawn-out bear market, and the downward trend is unlikely to reverse in the short term

Since June, domestic corn futures prices have shown an accelerating downward momentum, and the monthly chart of the corn main 1601 contract even posted 6 consecutive declines, showing that corn prices already have bear market characteristics. Under layer upon layer of pressure from adjustment to the stockpiling policy, massive inventory buildup, the new-season corn coming to market, and sluggish demand, corn prices are weighed down so heavily that a rebound is difficult.

The "weight" of stockpiling policy adjustment

Since the implementation of the temporary corn stockpiling policy in 2008, the annual temporary corn stockpiling purchase price had shown a year-by-year upward trend. Market corn prices, supported at the bottom by the temporary stockpiling price, also rose year by year, and this was an important driving force behind the strength of domestic corn prices in recent years.

As excess supply in the domestic corn market, massive inventory accumulation, and the wide price gap between domestic and international corn and various other factors combined, this forced the temporary corn stockpiling policy to reach a time for adjustment. Since the beginning of June, the market had been rumoring that this year's temporary stockpiling policy would be adjusted. Although there were many versions, a bearish adjustment approach was the mainstream market rumor. In terms of the temporary stockpiling purchase price, market rumors suggested that the temporary stockpiling purchase price might be adjusted downward for the first time. Although there was still dispute over the extent of the adjustment, the direction of downward adjustment had already been accepted by the futures market.

From the implementation level, against the backdrop of massive corn inventory accumulation, strictly enforcing purchase standards and strictly controlling indicators such as mold might reduce the scale of purchases, and the previous "open-ended purchasing" model would also face challenges. The bearish policy adjustment trend will push the floor price of the domestic corn market lower.

The "weight" of massive inventory accumulation

In 2013/2014 and 2014/2015, temporary stockpiling corn purchases were rapid, but sluggish auction sales led to a massive inventory surplus. In 2013/2014, temporary stockpiling corn purchases reached 69.19 million tons; in 2014/2015, temporary stockpiling corn purchases reached 83.28 million tons. The combined corn purchase volume in these two years reached 152 million tons. During the temporary stockpiling corn auctions from May to November 2014, a total of 29.65 million tons were sold (including 3.7 million tons of imported temporary stockpiling corn), while during the temporary stockpiling corn auctions from April to August 2015, only 3.83 million tons were sold (including 140,000 tons of imported temporary stockpiling corn).

A simple comparison shows that at least more than 110 million tons of corn remain in temporary stockpiling warehouses. An inventory level of more than 100 million tons is enough for one year of corn consumption by China's feed enterprises. The carryover of massive inventory constitutes heavy pressure on the domestic corn market.

The "weight" of new-season corn coming to market

Under this year's sluggish market sales pattern, the new corn coming to market became the fatal straw that crushed old corn prices. Compared with the same period last year, old corn inventories held by traders and grain depots in North China production areas remained relatively high, while new-season corn began to occupy the market successively from south to north. Quotes for new corn below 2,000 yuan/ton directly pushed old corn prices out of the market.

In terms of market arrival time, new corn is currently coming to market in Shanxi, Henan, Shandong and other places, and the time point for large-scale market arrival at the end of September is getting closer and closer, making price-cut sales of old corn unavoidable. The pace of new corn entering the market at low prices will greatly lower the center of gravity of corn prices.

The "weight" of sluggish corn demand

Both corn deep processing and corn feed consumption are sluggish, and the domestic corn market has already entered a cold autumn of weak demand.

Due to weak consumption of downstream products at deep-processing enterprises, sales prices began to enter a downward track from the end of June. As of the end of August, starch and alcohol sales prices had fallen by more than 200 yuan/ton, and deep-processing enterprises continued to suffer losses, which had already dragged down their operating rates. At present, the operating rate of the alcohol industry is only 40%, and the operating rate of the starch industry has fallen to 53%. The outlook for corn demand from deep processing cannot be described as optimistic.

However, under the rapid surge in corn imports this year and the rapid substitution impact of imported sorghum and barley, the market share of domestically produced corn has been retreating step by step. In addition, sow inventories have been in a downward trend for 23 consecutive months since August 2013. According to industry forecasts, the scale of corn feed consumption, which accounts for about 68% of the corn market, will decline by 10 million-15 million tons.

Overall, under the bearish adjustment of the stockpiling policy and the heavy pressure of oversupply, domestic corn prices have already entered a long, drawn-out bear market. Investors are advised to operate along the trend and treat short-term rebounds in corn prices with caution.