The spot corn market's bellwether has turned, and port flat-price quotes have bottomed out and are rebounding
From late March to the end of April, domestic corn market prices experienced a sustained decline under pressure from ample supply, sluggish consumption and increased substitution by sorghum. But after entering May, corn market prices began to show momentum of bottoming out and rebounding.
Starting auction prices for northeast state reserve corn provide bottom support
The 2015 state reserve corn auction began on April 9. The earlier auction timing was interpreted by the market as bearish, but the corn participating in the April auction was only southern cross-province relocated stock and imported state reserve corn; both the planned sales volume and the traded volume were limited, so the impact on the market was small. Entering May, northeast state reserve corn joined the auction list, and the starting auction prices that the market was closely watching were revealed. The starting auction prices for northeast state reserve corn from the 2012 crop and the 2013 crop were flat with the 2014 starting level, and the auction prices still followed the principle of “auction starting at a price in line with the market”.
According to estimates, after the state reserve grain goes through bidding and outbound delivery, its price will be higher than the current market price. Taking 2013-crop Liaoning grain as an example, the starting auction price for third-grade corn is 2360 yuan/tonne; adding premiums, outbound delivery fees and transport, the price delivered to the port will be close to 2500 yuan/tonne, 100 yuan/tonne higher than the current port purchase price of 2400 yuan/tonne for commercial grain. Therefore, the state reserve starting auction price provides bottom support for corn market prices. As state reserve auctions continue, market prices will move toward the price level led by the state reserve auctions, and corn prices will show momentum of steady-to-rising movement.
Pressure from “subsidy rumours” fades
Against the background of weak domestic corn consumption, deep-processing and feed enterprises placed their hopes on subsidies to escape difficulties. Since April, “subsidy versions” emerged one after another, putting enormous pressure on market bulls. But as of now, the subsidy policies already announced are limited to the deep-processing sector: the Heilongjiang provincial government gives a subsidy of 200 yuan/tonne to deep-processing enterprises in the province that participate in state reserve auctions, and the Jilin provincial government gives a subsidy of 150 yuan/tonne to deep-processing enterprises in the province. These subsidies are all stimulus policies issued by local governments, and no national-level subsidy has yet been introduced.
In addition, the market rumour that feed enterprises, especially southern feed enterprises, would “enjoy a subsidy policy for participating in auctions” still has produced no news, which brings the bearish impact of the “subsidy rumours” to a close for now.
Port flat-price quotes bottom out and rebound
After nearly a month and a half of decline, port corn flat-price quotes, the bellwether of the spot market, ushered in a bottoming-out and rebounding trend after entering May. Driven by continuously declining inventories, corn flat-price quotes at Guangdong ports have already recovered to 2540 yuan/tonne from the end of March, and this is also the highest flat-price quote since January this year. Correspondingly, flat-price quotes at northern ports also showed momentum of recovery, with prices returning to the 2430—2450 yuan/tonne range from the end of March.
In step with the spot market, futures price movements showed a trend of bottoming out and rebounding. The main corn futures 1509 contract fell from a high of 2572 yuan/tonne in mid-March to 2470 yuan/tonne at the end of April, a decline of nearly 100 yuan/tonne, but afterwards it began to rise steadily and broke through the important threshold of 2500 yuan/tonne. Driven by state reserve auction prices and the rising spot market, futures prices are expected to continue strengthening.
Taken together, after a month and a half of sluggishness, corn market prices have shown a trend of bottoming out and rebounding, and the spot bellwether has already begun to change. Supported by the rising spot market, corn futures prices are expected to keep pace with the spot market's rise.