China Corn Supplies Tight on Weather, Logistics

Corn prices in China are stable or rising, despite the elimination of the temporary reserve price floor policy. Chinese news media say cold, damp weather across corn-producing provinces and logistics bottlenecks are the main factors causing tight corn supplies in the first months of the corn-marketing season.

China's Grain Bureau says that a cumulative total of 19.55 mmt of corn from the 2016 crop had been procured in 11 major producing provinces as of November 20. The volume is 2 mmt less than at the same time last year. The corn-procurement season runs until April 30, so it's still early. (Last year, a total of 172.66 mmt was procured by April 30, so there could be another 150 mmt yet to be sold by farmers.)

Snow and cold temperatures across the northeast have made it difficult to dry corn and present possible mold problems. In Heilongjiang Province, a shortage of rail cars slowed the transportation of corn to ports in Liaoning for shipment to southern provinces. Reportedly, this problem is being addressed as Harbin's rail bureau makes more rail cars available. Some roads in Heilongjiang have been closed by heavy snowfall. Subsidies for northeastern processors is increasing demand for corn.

Foggy, damp weather in the Huang-Huai Rivers region of northern China also prevented corn from drying properly. Large amounts of corn in this region also are affected by mold, so supplies are tight. Feed mills need to replenish inventories as the peak meat consumption season at the lunar new year approaches.

The flow of corn to southern provinces is constricted by the above factors. Feed mills in the southern provinces need to hold larger inventories than those in producing areas, so there is keen competition for limited supplies and prices are rising in southern ports of Shanghai, Fujian, and Guangdong Provinces.

During the week of November 14-20, procurement prices for corn in Heilongjiang province ranged from 1200 to 1500 yuan/metric ton. In Jilin prices were 1400-1570 yuan/mt, Inner Mongolia 1420-1710 yuan/mt, and in Liaoining 1500-1780 yuan/mt. Prices at ports in Liaoning Province for shipment to southern provinces are 1750-1780 yuan/mt. Prices at ports in Fujian and Guangdong are 1960-1980 yuan/mt.

Corn futures at the Dalian exchange for January and May 2017 contracts have followed a V-pattern since the corn harvest began in September. Prices fell from about 1450 yuan to 1400 yuan during September 2016. Prices then rebounded during October and early November. The price for the January 2017 contract rose to over 1620 yuan in early November, and fell to 1592 yuan on November 24. The May 2017 contract rose to 1558 yuan in early November and was at 1543 yuan November 24. The spread between the two prices suggests that traders expect prices will fall in the spring after the peak consumption season is completed, farmers finish their sales of the new corn crop, and authorities try to re-start their sales of corn from reserves.