Can corn prices keep climbing after their crazy surge?
Expert: Bumper corn harvest reality unlikely to change high-price expectations
This year has seen the largest fluctuations and the biggest gains in domestic corn prices. Under pressure from policy controls, domestic corn prices have continued to run at high levels and even reached a historic high of 2,506 yuan/tonne in the first half of this year. This year's corn output will also be the highest in the country's history, and with new corn gradually being weighed and brought to market, a bumper domestic corn harvest is now a foregone conclusion. Against the backdrop of a bumper harvest, where will domestic corn prices go? At the 5th International Corn Industry Conference hosted by the Dalian Commodity Exchange on September 22, exchanges and clashes among industry experts showed that: the reality of a bumper corn harvest is unlikely to change high-price expectations, and the tightly balanced supply-demand pattern is an important reason why market funds are bullish on corn prices. The Dalian corn futures market mainly reflects changes in the domestic market and is becoming an indicator of domestic market prices.
Zheng Guichen, deputy general manager of Changchun Dacheng Industrial Group Co., Ltd., said that although corn production in Northeast China increased this year, it has not changed the tightly balanced state of domestic corn supply and demand, and this state will continue. At the same time, farmers' costs of growing corn have risen sharply, greatly strengthening farmers' expectations that corn prices will rise. With corn planting costs rising, it is inevitable that prices will "rise as the water rises."
In addition, the high prices of corn both internationally and domestically rest on a relatively high base. Corn futures inventories in the United States and China are also at low levels, and the United States will see a reduction of at least 10 million tonnes this year due to weather factors such as high temperatures and drought in August. It is expected that a sharp fall in prices this year will be impossible.
⟧ Zhao Yi, general manager of Dalian Shengwei Grain Group, believes that from a historical perspective, lows often follow highs, and he expects corn prices next year will not fluctuate as much as this year.
Demand from feed and deep-processing industries is the biggest driver
A representative attending the conference from Orient Futures believes that demand from livestock feed and deep processing is the biggest force pushing corn prices up. According to the company's survey of corn and soybeans in Northeast China organized in late August and early September, rising consumption levels have accelerated China's consumption of meat and eggs, leading to an increase in the inventories of hogs and meat-and-egg poultry, which in turn stimulated a surge in feed demand, ultimately reflected in higher raw material costs. As the feed ingredient accounting for the largest share of feed, corn has seen its price rise all the way since the beginning of 2010, driven by the surging consumption demand of deep-processing enterprises and feed enterprises, making it the focus of market attention.
According to data from the China Starch Industry Association, the national total of corn deep processing in 2010 was 52 million tonnes. On the basis that the proportion of corn deep processing in total corn consumption should be controlled within a reasonable level of 26%, the total amount consumed by deep processing in 2011 still reached 46.5 million tonnes. Although relevant departments have taken measures to curb the further expansion of corn deep-processing capacity and control total corn consumption, current conditions suggest that corn processing volumes may still be on an upward trend.
A representative from Yongan Futures believes that although corn production has increased, the increase on the demand side is also considerable. As the piglets restocked by farmers earlier gradually grow up, demand for feed will gradually increase, which will clearly provide some support for corn demand.
Dalian corn futures become an indicator of domestic market prices
Industry insiders attending the corn industry conference commented that futures prices in the Dalian corn futures market have good linkage with spot prices, providing the industry with a representative price and giving investors an effective market tool.
According to Guo Xiaoli, deputy general manager of the Dalian Commodity Exchange, corn futures have maintained steady operation since trading resumed at the exchange on September 22, 2004. As of September 16 this year, over the past 7 years, cumulative trading volume reached 287 million lots, turnover reached 4.95 trillion yuan, and delivery volume reached 3.02 million tonnes.
It is understood that, judging from operations in recent years, corn futures price trends have been relatively stable and have fairly well reflected the state's macro-control policies on the grain market. Especially since the end of last year, through the implementation of a series of measures to maintain market stability, the policy spirit of the central government on "stabilizing the overall price level" has been effectively carried out. It is worth noting that since 2008, the correlation between Dalian corn futures prices and international futures market prices has declined markedly compared with earlier years, and the impact of fluctuations in overseas corn prices on the domestic market has gradually diminished. The Dalian corn futures market mainly reflects changes in the domestic market and has become an indicator of domestic market prices. An encouraging trend is that relevant enterprises still maintain a relatively high degree of participation in the Dalian corn futures market. With the development of corn futures in recent years, the participation of investors in the market has remained very high, especially among spot enterprises. This year, the total number of clients participating in Dalian corn futures trading exceeded 150,000, including 1,492 corporate accounts.