Thursday, December 10, 2020

China Tries to Talk Down Corn Prices

Chinese officials attribute record-high corn prices to speculation and hoarding. For months they have been warning about impending collapse in prices and doom for speculators, but prices just don't come down.

The average corn price reported by the National Bureau of Statistics peaked in August, but resumed its climb in September-October despite the arrival of newly-harvested corn. The price appeared to level off in November, but the latest data point for late November bumped upward again. The late November corn price is up 34 percent from a year earlier. 
Source: China National Bureau of Statistics raw materials purchase price.

Preliminary estimates of grain output released by the Bureau today showed a tiny 100,000-ton decrease in corn output to 260.67 million metric tons in 2020. Some industry observers expected a larger decline due to multiple typhoons that hit northeastern China in the summer and fall, but agricultural officials insist that losses were minimal as experts helped farmers recover the corn from stalks flattened by storms. The Agriculture Ministry's S&D reports in November and December estimated a 4-mmt increase in 2020 corn production to 264.7 mmt. 

National Grain and Oils Information Center's November report blamed the typhoons for setting off speculation in the futures market, but claimed the damage was not that great and was offset by big harvests outside the storm-hit northeastern provinces. NGOIC expected a slight increase in 2020 corn output.

One recent article warned traders and farmers not to "blindly pursue higher corn prices" because a Dec. 4 National Grain and Commodity Reserves Administration news conference signaled impending policy pressure to bring corn prices down. The article cautioned market participants about signs that corn traders are about to start dumping their corn-holdings as the peak corn marketing season arrives. The writer said livestock farmers could not tolerate high corn prices for long--apart from hog farmers making modest profits poultry farmers are suffering big losses, and substitution of wheat for corn in feed rations is becoming more widespread.

Sinograin announced plans to suspend purchases of corn for reserves in the northeastern region. An auction of 576,574 metric tons of corn held in reserves since 2015 has been scheduled for December 11--such auctions are usually not held during the peak corn marketing season. 

Other news also appears calculated to tamp down expectations of corn shortages. Ukraine reportedly exported 1.3 mmt of corn to China in November. A "rumor" says that COFCO plans to buy 1 mmt of Brazilian corn. 

The increase in corn prices is not as strong in southern China where imported corn and other feed ingredients keep a lid on prices. Thus, the price differential between south and north is unusually narrow and stocks have built up at northern ports.

An article yesterday on Agricultural Futures Net insisted that a decline in corn price is nothing to be afraid of. The cost of holding record-high commercial corn stocks is high, the usual interregional corn price relationships are distorted, and demand is going to weaken next year. A decline in corn price is not a bad thing, the article insisted, because substitution of wheat and rice for corn, imports, and pressure from costs of holding inventory pose a risk for those holding high-priced corn inventories. 

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