Porto Alegre, December 7, 2020 – A psychological environment in relation to potential purchases by China in the U.S. market has consolidated a price surge to levels above USD 4.00/bushel on the CBOT. Crop losses in the United States and the optimistic projection of exports on 20/21 by USDA brought this fundamental support to the range of USD 4.00 to 4.30 a bushel. However, these indicators are only in the spreadsheets of analysts, who perform all kinds of exercises in a Chinese market that is totally uncertain in statistical terms. It would be completely disastrous for the international corn market to see a normal U.S. crop in 2021, a new production record in China, and Chinese imports reversing their curve even if only seasonally in 2021/22. Today, China is a major statistical uncertainty in the global corn market, and depending on the estimate, it can become a major support point for prices as a total reversal of expectations.
The USDA’s reports included the maintenance of a good trend for U.S. domestic demand in the face of expectations of economic recovery for the coming year. They also brought a loss of production in relation to the expected super-harvest. Initially, a harvest of between 380/400 million tons was expected and the current numbers yielded to 364 million. Normal situations within a crop year subject to climatic variations.
The fact that began to change the trajectory of the U.S. supply and demand was the Chinese buying movement after the reopening of its market, with the relief of the local pandemic. China has made unprecedented advances in corn imports, given the difficulties in moving the stocks from the northeast of the country to the south and southwest. This movement created the need for consumer hubs in the south and southwest to opt for imports as a short-term supply since domestic logistics could cause a rupture in this supply. In this movement, China bought 7.8 million tons, mostly from the United States and a little bit from Ukraine.
The import quota set by the Chinese government is 7 million tons this year. Above this quota, the import tax is 65%. As the Chinese market has already reached its import limit and the government has not raised the quota for 2020, imports are paralyzed or were much lower at the end of the year. For those who expected an increasing and absurdly high demand at the end of the year, the flow was well beyond expectations.
Agência SAFRAS Latam
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