Temporary reserve auction launched, corn prices under pressure and trending downward
On Thursday, the fifth round of temporary reserve corn auctions in Northeast China began. This auction is planned to be held over two days, with a total of 3.028 million tons of temporary reserve corn to be offered. Since April 9, news of batch releases of Northeast temporary reserve corn onto the market has continued to pressure the nearby corn 1509 contract, and starch has also followed the decline due to falling corn raw material prices. Considering that the starch futures market price shows a discount pattern, the downside room for starch futures prices is limited.
Corn prices in Northeast production areas fell, and auctions affected market purchasing psychology
Since temporary reserve corn was released onto the market on April 9, domestic corn spot prices have ended their strong upward trend. After temporary reserve corn purchases shifted to targeted sales, corn spot prices in many parts of China stabilized with a slight decline.
For the fifth round of temporary reserve corn auctions starting on May 7, corn deep-processing enterprises have responded calmly by proactively lowering corn purchase prices. Some enterprise managers said that temporary reserve corn auctions follow the principle of sales at parity, which will push down mainstream sales prices in the corn spot market, and enterprises can moderately adjust corn raw material procurement plans according to the auction volume and prices of temporary reserve corn. At present, the corn purchase price range of corn deep-processing enterprises in Shandong is 2320-2390 yuan/ton, and the corn purchase price range of corn deep-processing enterprises in Northeast China is 2150-2240 yuan/ton, down 30 yuan/ton from last week.
Deep-processing industry operating rate is low, enterprises await implementation of price subsidies
Since the beginning of this year, domestic corn deep-processing enterprises have continuously suffered losses in processing. As of the beginning of this week, corn starch processing enterprises in Jilin lost 16 yuan/ton, starch processing enterprises in Shandong lost 84 yuan/ton, and alcohol processing enterprises in Heilongjiang saw losses expand to 500 yuan/ton. Long-term losses for corn deep-processing enterprises have kept their operating rates low. Statistics show that the current operating rate of the domestic corn starch industry is 51%, and the operating rate of the alcohol industry is 43%.
The grain-use subsidy for the 2015 state reserve corn auction began implementation on April 15. For corn deep-processing enterprises participating in the auction, as long as their processing scale and processing capacity meet the subsidy requirements, corn deep-processing enterprises in Heilongjiang and Jilin will receive price subsidies of 200 yuan/ton and 150 yuan/ton respectively. Enterprises hope to use the form of temporary reserve corn price subsidies to alleviate the current processing losses of enterprises.
Starch futures prices at a discount to spot, limited downside room for futures prices
Along with the introduction of the temporary reserve corn sell-off policy in late March and early April, domestic starch futures prices also experienced their largest decline since listing. As of the close on May 5, starch futures prices had fallen from the early February high of 3100 yuan/ton to 3000 yuan/ton, and in mid-April starch futures prices had even reached a low of 2900 yuan/ton. During the decline in starch futures prices, the discount pattern of September starch futures prices also gradually emerged.
If calculated according to the purchase price of corn raw materials in Shandong of 2350 yuan/ton, the cost price for starch enterprises to process one ton of starch is 3180 yuan/ton. Based on the cost calculation of Shandong starch spot at a premium of 95 yuan/ton, the lowest price for Shandong starch enterprises to enter the market for hedging is 3085 yuan/ton. Calculated at 2990 yuan/ton for the 1509 contract, it is at a discount of 90 yuan/ton to spot. Therefore, under the circumstance that both corn and starch are affected by the temporary reserve sell-off policy, the decline in starch futures prices will be smaller than that of corn, and the discount of starch futures to spot will provide support for starch futures prices.