Corn rally curbed, temporary storage auction timing still undecided
After the corn 1701 contract staged a bottom rebound in mid-April, it launched another rebound and began rising at the end of May, probing as high as 1642 yuan/ton on June 2. But the good times did not last, and it subsequently fell back into consolidation, indicating clear upward pressure. Under expectations of large-scale stock release, corn prices should have run weak, yet they unexpectedly oscillated higher. Is this the start of a genuine rally in corn, or a last struggle before a decline?
Supply of high-quality grain is becoming increasingly scarce
At the end of April, the state's temporary purchase and storage of corn ended. For the 2015/2016 marketing year, a cumulative 125.43 million tons of corn were purchased, and temporary storage corn inventories reached as high as 280 million tons, making the destocking pressure self-evident. After the temporary storage program ended, the supply of high-quality grain on the market became increasingly scarce, and commercial grain entered a tightening situation. By region, after the temporary storage ended, with rotation corn and provincial reserve auctions both underway, the Northeast market came under clear pressure and was mainly steady to weak; North China, due to limited remaining grain and improved demand from deep-processing enterprises, saw a phased situation of supply falling short of demand, supporting corn prices higher and leading gains across other regions nationwide. At the same time, rotation corn continued to be supplied in sales regions, enterprises mostly signed contracts for rotation corn, and procurement remained mainly hand-to-mouth, keeping corn prices in sales regions temporarily stable.
Impact of targeted sales falls short of expectations
The results of two rounds of targeted corn sales showed that premium transactions were fairly common and the transaction rate was better than expected, reflecting the current shortage of high-quality grain on the market. It is understood that the highest auction price for first-grade grain was 1830 yuan/ton, and transaction rates for corn in North China, the Huang-Huai region and the South were relatively high, indirectly reflecting the market's urgent demand for high-quality grain.
Because the quality of corn sold through targeted sales is relatively poor and can only meet the needs of some enterprises, the bearish impact of targeted sales on corn is limited. However, as temporary storage corn auctions continue, the purchasing willingness of alcohol and ethanol enterprises may decline, which will affect market consumption of aged corn. According to the latest news, on June 6, the grain department of Heilongjiang province announced a new batch of enterprises participating in targeted sales, including 5 feed enterprises and 2 alcohol enterprises. If the targeted sales scope continues to expand later, it will further weigh on corn prices.
Imported grains are about to arrive at ports in concentrated volumes
The latest data released by the General Administration of Customs show that from January to April, total corn imports were 1.8 million tons, overtaking the import volume in the same period last year, an increase of 430,000 tons from 1.37 million tons last year, a gain of 31.1%. In April, China's corn imports rose to 1.155 million tons, the highest monthly import volume since 2014, with a month-on-month increase of 100.8% and a year-on-year increase of 720.4%; sorghum imports were 630,000 tons, down 24.2% month on month and down 36.5% year on year; barley imports were 240,000 tons, down 23.2% month on month and down 75.5% year on year.
Although the state has achieved certain results in curbing imports of substitutes, with barley and sorghum imports declining to varying degrees, as imported corn and substitute grains continue to arrive at ports, domestic corn will be subject to a certain impact.
Downstream demand shows signs of recovery
Information from 4,000 monitoring points on live pig inventories in April showed that domestic live pig inventories rose slightly to 372.16 million head, up 0.6% from March; breeding sow inventories rose slightly to 37.69 million head, up 0.3% from March. As pork prices continued to trend favorably, with the pig-to-grain ratio above 11, farmers were active in restocking, and terminal feed demand showed positive development, which to a certain extent boosted consumption demand for corn.
Deep-processing enterprises have been actively replenishing inventories
Because upstream raw material corn prices fell sharply this year, profits of corn starch and alcohol enterprises improved somewhat, operating rates were higher than in previous years, and industrial demand increased, providing phased support for spot corn prices. It is understood that when the market was bearish on corn earlier, enterprises mostly maintained low inventories, but as corn prices rose and the temporary storage auction policy was slow to be announced, deep-processing enterprises, worried about policy uncertainty, began actively entering the market to replenish inventories, thereby supporting higher corn purchase prices at deep-processing enterprises. However, terminal demand for corn consumption was poor and shipments were mediocre. Before truly entering the peak consumption season, the increase in corn inventories caused by restocking may become a long-term bearish factor.
Overall, amid the shortage of high-quality grain and some improvement in downstream demand, corn prices ran firm, but the unresolved timing of temporary storage auctions curbed the corn rally to a certain extent. Going forward, as the timing of temporary storage auctions is settled, beware of the risk of price declines caused by increased market supply. (Author's affiliation: Meiliya Futures)
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