Corn reserve auction suppresses excessive price rises, market wait-and-see sentiment strengthens

Last week's reserve corn auction marked the official start of this year's reserve corn auctions. Although the auction regions were concentrated in the sales areas, this has already sent a signal to the market of increased supply. Considering that about 75 million tonnes of reserve corn remained domestically last year, and that this year's reserve corn purchases are steadily approaching 80 million tonnes, the supply of reserve corn is enormous.

Northeast corn trend still hinges on policy

This week, corn prices in Northeast China fluctuated slightly. On April 16, the ex-warehouse price of 14% moisture second-grade corn from traders in Qiqihar, Heilongjiang was 2240-2260 yuan/tonne, and the purchase price of deep-processing enterprises in Songyuan, Jilin was 2300-2330 yuan/tonne, both up 20 yuan/tonne from last week; the purchase price of deep-processing enterprises in Changchun was 2280-2300 yuan/tonne, down 20 yuan/tonne; the purchase price of feed enterprises in Shenyang, Liaoning was 2350-2380 yuan/tonne, and the purchase price of deep-processing enterprises in Tongliao, Inner Mongolia was 2340-2380 yuan/tonne, both basically flat.

At present, the total reserve purchases in Northeast China are steadily approaching 80 million tonnes, which has also led the market to continually revise upward its estimate of corn output in Northeast China. In October last year, the author estimated corn output in the four Northeast provinces and regions at around 96 million tonnes. At present, from October last year to March this year, corn feed use in Northeast China is estimated at around 6 million tonnes, deep-processing use at around 9 million tonnes and outbound shipments at around 18 million tonnes; further considering that around 3 million tonnes of corn from the Northwest and North China flowed back into Northeast China, increasing supply, this means that over the past 6 months local corn consumption in Northeast China was about 30 million tonnes. Adding the corn purchased for reserves, actual corn output in Northeast China may be around 110 million tonnes.

At present, corn in Northeast China has basically bottomed out, and later corn supply will mainly rely on reserve auctions. This week, Heilongjiang Province auctioned 290,000 tonnes of provincial reserve corn; market rumours say that deep-processing enterprises above a certain scale can obtain a subsidy of 200 yuan/tonne for purchases, and some even say that later reserve corn auctions will also have a subsidy policy. According to previous estimates, the in-plant cost of corn from reserve auctions should be 2400-2500 yuan/tonne; if there is a subsidy policy, estimated for now at 100 yuan/tonne, the delivered price would be 2300-2400 yuan/tonne, which is basically consistent with the current market price. Although the news has not been confirmed, the market has long expected a subsidy policy, which is also the reason some market players hold a wait-and-see attitude.

In short, if there is no influence from relevant subsidy policy factors later, corn prices will continue to rise; if there are relevant measures, the momentum for corn prices in Northeast China to continue rising will weaken.

Without policy, North China corn rises steadily

This week, corn prices in the North China production areas both rose and fell, with Shandong prices adjusting frequently in particular; some enterprises raised their quotes early in the week and lowered them after Wednesday. The purchase price of 14% moisture second-grade corn by deep-processing enterprises in Weifang, Shandong was 2380-2430 yuan/tonne, and in Dezhou 2330-2360 yuan/tonne, both up 10 yuan/tonne from last week; in Zaozhuang 2350-2380 yuan/tonne, down 10 yuan/tonne. The purchase price of deep-processing enterprises in Shijiazhuang, Hebei was 2280-2300 yuan/tonne, down 20 yuan/tonne. The purchase price of deep-processing enterprises in Zhumadian, Henan was 2250-2300 yuan/tonne, basically flat.

At present, corn stocks in North China are expected to be higher than in the same period last year. By mid-April, corn stocks held by farmers in Shandong were estimated at around 20%, in Hebei at an estimated 20-30%, and in Henan at an estimated 30-40%, but corn inventories at traders and in the processing segment grew markedly year on year, with some processing enterprises holding about 1 month of grain supply.

By contrast, in the same period last year traders had almost no inventory, and enterprise inventories were also small. By province, corn produced in Shandong is still mainly for own use, and grain is also purchased from Hebei, Henan and other places. Outbound shipments of corn from Hebei and Henan this year are less than last year. In particular, Henan corn is of poorer quality; traders in some areas report it can only be used for poultry feed, and it is also unfavourable for building inventories, which has left more corn remaining. North China corn can still support 3-4 months; after July, North China will need to rely on reserve corn auctions to supplement grain supply. If reserve auction prices remain at last year's level and there is no relevant subsidy policy, then North China corn prices still have room to rise, with the previously estimated price ceiling at 2600-2700 yuan/tonne.