Corn price fluctuation risks remain in the outlook, North China market needs caution

Monitoring by relevant state agencies shows that as of now the progress of farmer corn sales in the North China and Huang-Huai region is 35%, basically flat with the same period last year, among which Hebei farmers' corn sales progress is 26%, up 4 percentage points from last week and 3 percentage points slower than the same period last year; Henan's corn sales progress is 38%, up 4 percentage points from last week and 1 percentage point faster than the same period last year; Shandong's corn sales progress is 40%, up 3 percentage points from last week and 1 percentage point faster than the same period last year. The acceleration of farmer grain sales in the North China and Huang-Huai region is mainly because since early December, the snowy weather in the North China and Huang-Huai region has ended, which is favourable for farmers to sell grain and for logistics and transport. Unlike farmers in Northeast China who are reluctant to sell, it is understood that farmers in North China are not reluctant to sell, and December and January are the peak grain-selling period in North China. Weather forecasts show that in the coming week, apart from a small amount of precipitation in the Huai River basin, weather conditions in most other parts of North China will be good, which is favourable for farmers to sell grain.

At the same time, the progress of farmer corn sales in Northeast China has accelerated. As of now, Heilongjiang farmers' corn sales progress is 49%, up 5 percentage points from last week and 10 percentage points faster than the same period last year; Jilin's corn sales progress is 30%, up 6 percentage points from last week and 1 percentage point faster than the same period last year; Liaoning's corn sales progress is 38%, up 7 percentage points from last week and 8 percentage points slower than the same period last year; Inner Mongolia's corn sales progress is 29%, up 6 percentage points from last week and 7 percentage points slower than the same period last year. In the coming week, the scope of snowfall in Northeast China will shrink further compared with this week, and will mainly be concentrated in northwestern and eastern Heilongjiang, while weather in most of Northeast China will be suitable, which is favourable for farmers to sell grain.

Traders in Hebei report that purchasing is currently difficult, because corn moisture content is still relatively high, and when buying corn at a 15.5% moisture standard, purchase volumes are very small. Because there is not much drying equipment in Hebei, traders find it hard to buy in large quantities. It is understood that this year Hebei corn moisture content has been falling too slowly, whereas in the same period in previous years large-scale purchasing was already possible, mainly because in November Hebei had more precipitation and persistent smog, which was unfavourable for corn moisture content to decline, while in late December Hebei's weather is still acceptable, which is favourable for corn moisture content to decline. According to monitoring, as of now starch prices have fallen noticeably, with starch prices in North China dropping to 2300-2350 yuan/tonne, down 50-100 yuan/tonne from last week; starch prices in Northeast China have dropped to 2300-2350 yuan/tonne, down about 50 yuan/tonne from last week. The decline in starch prices is mainly because starch plants' operating rates have been at a relatively high level over the past month or more, starch output has been large, while demand growth has been slower than output growth, starch processing enterprises' starch inventories have increased, and some starch enterprises have had to cut prices to sell starch. According to estimates, after the decline in starch prices, processing profits at starch plants in some areas have turned negative, even falling below the shutdown line, and it is expected that some enterprises with larger starch inventories and smaller scale will reduce operating rates and limit output.

In the coming month and a half, North China corn prices will be caught in a contest between two major factors on the supply and demand sides. On the supply side, the coming month and a half is the peak grain-selling period for farmers in North China, and corn supply will increase significantly. At present, corn moisture content in North China is still on the high side, especially in Hebei, which has affected its use by local grain-using enterprises. However, since early December, weather conditions in North China have been favourable for reducing corn moisture content and also favourable for farmers to sell grain, and the potential supply in the North China corn market before the Spring Festival is relatively large. On the demand side, in the coming month and a half, grain-using enterprises in North China will build relatively high corn inventories to cope with the situation of reduced grain sources during the Spring Festival and the first lunar month. At present, corn inventories at grain-using enterprises in North China are not high, with most enterprises holding corn inventories equivalent to about 10 days of processing use, and before the end of January corn inventories need to increase to more than 30 days of processing use. It is expected that the potential demand in the North China corn market before the Spring Festival is relatively large.

At present, farmers in North China do not have an obvious reluctance to sell, and the grain-selling progress will gradually accelerate. The main factor affecting the short-term supply and demand situation for corn will depend on the mindset of grain-using enterprises in building inventories. Analysis suggests that in the short term grain-using enterprises in North China will not substantially increase corn inventories, North China corn prices will still fluctuate slightly, and depending on farmers' grain-selling progress, corn prices in some areas will move lower, but entering January grain-using enterprises will no longer wait for market price changes and policy rumours, and will have to increase corn inventory building, at which point North China corn prices will stabilise or strengthen.