Tuesday, June 6, 2017

China Corn Auctions Cool Off?

Since early May, China has sold 21.3 million metric tons of corn from its massive reserve through 14 sales and auctions. There are doubts about whether the market can continue to absorb corn at this pace.

A mid-April 2017 survey found eight starch mills in northeastern China were operating at full capacity, and millions of tons of new capacity is under construction. The price of corn was down 30 percent from a year ago due to the cancellation of the temporary reserve program. Northeastern starch production had regained its competitiveness, and substitution of imported cassava starch is down. Export rebates for starch encouraged production, and processors were running at full tilt in anticipation of the June-30 end of subsidies for industrial processing of corn. Processors have built up unusually high inventories.

Cofeed.com estimates that starch production for the month of May was about 2.1 million metric tons, and they estimate capacity utilization at 75 percent. They estimate starch inventories were up 32 percent in May. Cofeed.com estimates that processors in most provinces are losing money.

According to another report from Cofeed.com, fuel ethanol production has also bounced back and China has swung from ethanol importer to exporter. In the first four months of 2017 China's ethanol exports totaled 42,701 liters, more than the export volume for all of last year. Traders say the export rebate and subsidies for processors revived export sales. Saudi Arabia accounted for two-thirds of sales, and North Korea was another buyer.

Analysis by Futures Daily sees signs that the pace of corn auctions is cooling off based on weakening prices and a decline in the proportion of corn sold in more recent auctions. Agricultural Futures Net agrees that a lower success rate in the June 1-2 auctions, high inventories held by processors in the northeast, and losses by starch manufacturers signal slower sales in June.

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