2016 Corn Market Analysis: Corn Prices May See a Turnaround in Early December

What is the trend of corn prices at the end of 2016? This year is different from previous years, with large fluctuations in corn market prices. Earlier periods of sharp rises and falls and severely restricted transportation and other factors also made purchasing operations difficult. Grain quality and timing are both very hard to judge, and based on experience, feed mills this year have been operating at lower rates, with usage dropping sharply, which has largely suppressed market prices, so mills need to accurately grasp the timing to reduce purchasing risk.

Frequent Price Fluctuations Make Transportation the Main Problem

Since entering the fourth quarter, new-season corn has been coming to market across China. This year, affected by widespread rainfall, the drying and storage of corn in the North China production area has led to some decline in quality. Low corn prices in the Northeast production area have made it the "sweetheart" of domestic grain-using enterprises, but the low corn prices have not made enterprises feel they are benefiting. The main reason lies in transportation. Especially recently, many feed mills have reported that high transportation costs, scarce vehicles and unstable transportation cycles have already affected production at some mills, forcing feed mills to raise inventory levels to more than 20 days. On one hand, this greatly reduces the liquidity of enterprise funds; on the other hand, high inventory also means mills must bear the risk brought by falling corn prices. Most importantly, low corn prices plus high transportation costs mean production costs have not dropped noticeably. Instead, the circulation of corn has clearly decreased, and apart from purchasing corn from surrounding areas, cross-province transportation is extremely difficult for mills. This is especially true in provinces such as Sichuan, Jiangxi, Hunan and Hubei, where some local mills have even suspended production for lack of feed materials, because corn from nearby provinces declined in quality due to rainfall, while corn from the Northeast production area is very difficult to purchase due to the problems of hard-to-find vehicles, high freight costs and long transport distances, leaving inventories unsustainable. Until now, this situation has not shown very obvious improvement.

Corn Shows a Slow Decline Trend

If we say corn prices will fall in the future, that is basically the view of the vast majority of people in the industry. But after several sharp rises and falls, not only buyers are exhausted physically and mentally, traders and farmers have also suffered greatly, with a strong reluctance to sell. This can also explain why, at present, with better weather and ample corn supply, market prices are hard to fall. But as mentioned above, the Spring Festival is coming soon, and reasons such as farmers repaying loans and pre-Spring Festival expenses have clearly increased their willingness to sell. It is also understood that some southern mills have begun to increase the use of substitutes such as barley and sorghum. After all, compared with high corn prices, substitutes cannot completely replace corn, but adding a small amount can appropriately lower production costs. It is expected that although corn prices may have a chance to fall in the future, the decline will be small, since imports of substitutes were subject to many restrictions this year.

Early December May Be Key, Purchasing Regions Become Crucial

Considering the above situation, whether from the perspective of corn prices or the procurement and transportation cycle, late November to early December may be a relatively reasonable purchasing time. From the information currently available, this is indeed the case. Recently, some mills in southern sales areas have reported that in early December they will begin to increase corn purchase volumes and raise inventories for pre-year reserves, with planned purchasing areas in the Northeast production area, mainly due to annual purchasing habits and consideration of grain quality. The situation in North China, by contrast, is more tangled. Normally, local corn does not involve high transportation costs and should be the first choice, but this year's heavy rain during the local grain drying period led to higher moisture, mildew and toxin levels, making whether corn quality can improve noticeably later a issue that mills are quite worried about. After December, once feed mills in various places increase stocking demand, the closer it gets to the Spring Festival, the greater the supporting effect on corn prices, possibly boosting market prices to some extent. Without clear policy support, overall market stocking time may be earlier than in previous years, especially in southern sales areas, where the impact of logistics is somewhat greater.