Analysis of the Corn Market Outlook: Domestic Conditions Are Not Optimistic

At present, the domestic corn market is showing a slightly divergent trend. On the one hand, under the influence of snowfall weather, farmers' reluctance to sell, and policy-based purchases, corn prices in Northeast China have been stable with slight local fluctuations. On the other hand, as arrivals have shrunk, deep-processing enterprises in North China have slightly raised their purchase prices to meet production needs. Traders at northern and southern ports are strongly wait-and-see, and with ample inventories, corn prices are stable but slightly weak. Although the volume of temporary state reserve purchases in Northeast China is currently climbing, farmers at the grassroots level remain strongly reluctant to sell, but the peak grain-selling period before the Spring Festival is approaching, and the risk that weather will affect the later quality of corn still exists. In addition, recent market rumors say that in January large quantities of old state reserve grain may enter the market, and the possibility that a targeted sales policy will be implemented cannot be ruled out. Therefore, the author's analysis holds that the outlook for the domestic corn market is not optimistic.

Corn Market Prices in Northeast China Are Generally Stable

In recent times, snowfall weather, farmers' reluctance to sell, and policy-based purchases have become the main factors affecting the trend of the corn market in Northeast China. On the one hand, since entering December, most areas of Northeast China have had more rain and snow, and market buying and selling activity was once affected. On the other hand, corn market prices in Northeast China are currently significantly lower than the same period last year, and some farmers have again become reluctant to sell. In addition, temporary state reserve corn purchases have risen back to a relatively high level, providing some support for corn prices. As of now, the ex-factory price of first-grade corn for feed enterprises in Harbin, Heilongjiang is 1990 yuan/tonne, and the ex-factory price of third-grade corn for deep-processing enterprises is 1790 yuan/tonne; in the Changchun area of Jilin, the ex-factory price for feed enterprises is 2040 yuan/tonne, and for deep-processing enterprises 1960 yuan/tonne; in the Shenyang area of Liaoning, the ex-factory price for feed enterprises is 2040 yuan/tonne, and the ex-factory price for deep-processing enterprises is 1980 yuan/tonne, all basically flat with the weekend. Jilin and Heilongjiang provinces still have widespread snowfall, and farmers' grain selling and logistics will be affected to some extent, temporarily supporting prices. At the same time, the Spring Festival falls in early February, and the coming month will be the peak grain-selling period before the festival, which also puts pressure on grain prices. In the future, close attention should be paid to the game between temporary reserve progress and the pace of farmers' grain selling.

Corn Prices in North China Are Stable with Some Increases

At present, grassroots grain selling in the North China production area is generally slower than in the same period, and abundant remaining grain suppresses a sustained rebound in grain prices, but most grassroots corn still has relatively high moisture content, supporting slight upward adjustments in purchase prices at some local deep-processing plant gates. As of now, the ex-factory price of third-grade corn with 14.5% moisture for deep-processing enterprises in the Weifang area of Shandong is 1900-1960 yuan/tonne, basically flat with last weekend, with individual enterprises up 10-20 yuan/tonne; the ex-factory price in the Shijiazhuang area of Hebei is 1740-1760 yuan/tonne, basically flat with last weekend. As the smog in North China and the Huang-Huai region gradually disperses starting December 15, meteorological forecasts show clear and good weather in the production areas during the week, and it is expected that farmers' current reluctance to sell may be disrupted by the increased volume of dry grain and enterprises' continued price adjustments, especially the impact of increased volume from Hebei production areas on grain prices in surrounding areas as well as the eastern and southern regions. At the same time, before the Spring Festival, the two main factors affecting the corn market in North China are that farmers will speed up grain selling and grain-using enterprises will increase inventories. December and January are the peak grain-selling periods for farmers in North China, while current corn inventories at grain-using enterprises are generally low, below 10 days of processing use, and will be replenished to 30 days of processing use before the end of January. Therefore, in the coming month and a half, the corn market in North China will show both increased supply and increased demand, and prices will depend on the pace of increase on both the supply and demand sides.

Corn Prices at Northern and Southern Ports Are Stable but Slightly Weak

Since mid-December, corn prices at northern and southern ports have been operating steadily but slightly weak. On the one hand, temporary state reserve corn purchases in Northeast China have supported corn prices at northern ports, but shipment volumes at Guangdong port are poor and enterprises' willingness to purchase is not strong. On the other hand, corn inventories at Guangdong port are ample, and sorghum and barley have an obvious price advantage. As of now, the mainstream purchase price of corn at Jinzhou Port is 2035 yuan/tonne, flat with last weekend; the arrival price of Northeast corn with 15% moisture at Guangdong port is around 2170 yuan/tonne, flat with the weekend; the arrival price of North China corn is 2140-2150 yuan/tonne, slightly down 5-10 yuan/tonne from the weekend.

The Pace of Temporary State Reserve Stockpiling in Northeast China Has Climbed Back Up

According to statistics from the State Administration of Grain, as of December 10, 2015, the total volume of corn put into temporary reserve storage was 31.9 million tonnes, including 19.22 million tonnes in Heilongjiang, 6.85 million tonnes in Jilin, 680,000 tonnes in Liaoning, and 5.14 million tonnes in Inner Mongolia. The single-week storage volume from December 5 to 10 was 5.2 million tonnes, a clear increase from 3.22 million tonnes the previous week, and the pace of temporary reserve storage has risen back to a relatively high level. It is also understood that corn purchases by feed enterprises and corn deep-processing enterprises in the Jilin area have clearly increased from the low point of the past few days, reaching or approaching the normal purchase volumes of the earlier period. Some processing enterprises report that purchase volumes slightly exceed processing volumes, and the downward trend in corn inventories has been checked. At present, most corn deep-processing enterprises in the Jilin area have corn inventories below 7 days of processing use.

Concerns Are Raised About the Quality and Safety of Corn in Northeast China

This week, Jilin Province issued the "Emergency Notice on Earnestly Doing a Good Job in Safe Grain Storage Under Abnormal Weather," confirming our earlier concerns about the post-harvest quality of corn in Northeast China during this year's warm winter. Admittedly, the Jilin provincial government notice put forward 6 items, including opinions on strengthening attention to safe grain storage work and strengthening services for farmers selling grain. Similar to Heilongjiang in 2013 and Jilin in 2014, this year the Northeast corn production areas have again seen snowfall accompanied by temperatures higher than the same period, putting locally "ground-piled grain" corn at risk of mould. Because snowfall causes an ice layer to form and seal the surface of "ground-piled grain," the temperature inside the grain pile rises, humidity increases, and mould grows, making grain discoloration and mould extremely likely. According to the Jilin provincial government document, starting December 8, Jilin Province experienced rare abnormal weather with high temperatures and alternating rain and snow. Among them, some areas of Changchun City, Siping City, Liaoyuan City, Jilin City, Tonghua City, and Baishan City had maximum temperatures above 0°C for 3 consecutive days. During the same period, the overall strength of cold air in China was relatively weak, temperatures in most parts of the country were higher than the same period in normal years, and meteorological forecasts show that from December 15-24 the average temperature in most of North China and Northeast China will be 1-2°C higher than the same period in normal years. Up to early December, the corn mould problem in most areas of Jilin Province was not prominent, and the pace of temporary reserve purchases was normal. However, because Jilin corn froze in batches and came onto the market at the end of November and in December, as of December 10 the cumulative temporary reserve corn purchase volume was only 6.86 million tonnes, dwarfed by Heilongjiang's nearly 20 million tonnes of temporary reserve corn purchases, and some temporary reserve grain sources also came from Heilongjiang. Calculated on the basis of Jilin's annual corn output of 28 million tonnes, future corn faces a relatively large risk of mould.

Consumption Willingness at the Deep-Processing Demand Level Is Weak

Recently, starch prices have been stable but slightly weak, actual transaction prices have probed lower at the low end, downstream enterprises' willingness to purchase is not strong, the starch operating rate remains high, starch inventories are increasing, and starch prices are under downward pressure. Monitoring shows that the operating rate of starch processing enterprises in North China is 81%, flat with last week. Some starch plants report that the operating rate has remained relatively high over the past 2 months, leading to a significant increase in starch inventories. Over the past two weeks, starch prices in North China have moved lower, but starch inventories have not been digested quickly, and it is expected that in the short term starch prices in North China will continue to be weak, and it cannot be ruled out that individual enterprises will limit or cut production. The market generally expects obvious downward pressure on corn prices later, and later starch prices may mainly refer to corn pricing, with a high expectation of weakness. However, as the year-end approaches, it is recommended to pay attention to changes in the pace of downstream purchasing.

Looking ahead, although for the Northeast production area the pace of temporary state reserve corn purchases has risen back to a relatively high level, which may greatly boost market confidence, the Spring Festival is approaching, and the coming month is the period when farmers in the production areas concentrate on selling corn, with the peak volume also appearing at this time. In addition, because the warm-winter effect brought by this year's extremely strong El Niño weather poses a potential threat to the harvest quality of Northeast corn, upward movement in Northeast corn prices will still face certain pressure. For the North China production area, the game between farmers' grain selling and market demand will become the main factor affecting market prices, and the risk of short-term price fluctuations has not been removed. In the future, close attention should be paid to changes in the pace of farmers' grain selling and the absorption by downstream temporary reserves, enterprises, and ports.