Market of corn aligns with Chinese prices


         Porto Alegre, February 17, 2021 – We cannot say that the movement of purchases by China will be continuous. However, this year, the international corn market is starting to align with China’s prices. The Gulf of Mexico FOB is maintaining a spread of USD 200/ton against the Chinese domestic price and assessing the short-term need for imports. If Chinese prices fall, there may be pressure on international prices or when the US crop is able to replenish its stocks. Insecurity regarding information from China and/or international market agents remains great and is the biggest point of global concern. USDA updated its information on the supply and demand picture and increased potential imports from China, but it did not bring to US exports the same proportion of increase in volume. Could China look for other alternative markets such as Ukraine, Argentina and later Brazil?

         The set of information about the corn market in China remains a factor of global concern. We are talking about the second-largest consumer in the world, which may exercise constant dependence on imports going forward and change the structure of the international corn market. At this point, there is no general consensus on any data regarding corn in China. The Chinese Agriculture Minister pointed out that his country will import only 10 million tons this year, after having already bought 17.7 million tons from the United States (with 6.5 million tons in February alone). Some trading companies point to 25 million tons of potential imports, while others point to 30 or even 50 million tons. Chinese consultancies point to 25 million tons. Indeed, a serious divergence and inconsistency, simply because the reality of local stocks is not known.

         The USDA’s February report raised the forecast for China’s imports from 17.5 to 24 million tons, within a theoretical consensus amid trading companies. However, it did not increase US exports in the same proportion, that is, USDA put sales at 66 million tons, only two million above the previous report. At this point, the CBOT market did not like the information very much, as it expected that all growth in Chinese purchases would come from the United States. This was basically the reason for the price adjustment on the CBOT after the USDA’s report.

         At this point, we must understand that the Chinese production of 2021 will only reach the local market in October, and until then it is necessary to meet the regional demand. Besides, the US crop will only reach the local market in September, and until then it will have to support this pace of purchases from China. China has been trying to meet its demand with strong wheat and feedstuff auctions, but corn prices are still close to their highs. If these prices remain high throughout the semester, there may be new purchases despite the fact that the government has not changed its import quota of 7 million tons a year without taxation. So far, the volume of purchases in the US market alone is 17.7 million tons, and there is still a chance of increasing volumes until the arrival of the Chinese crop.

         The first projections for the area to be planted in the 2021 season in China point to 42.5 million hectares, against 40.2 last crop. The production potential would be between 270/275 million tons, a record crop. Productivity might surprise due to the rising use of GMs too. A larger crop could collaborate to reduce Chinese import needs from October, even with an increase in domestic demand.

         What really remains incompatible with the profile of events is the figure for Chinese stocks released by USDA: almost 200 million tons. For a country holding such stocks, a sudden increase in imports does not seem to match reality. Other sources point to stocks ranging from 54 to 110 million tons. Undoubtedly, the era of uncertainty in the global corn market.

         With South America’s summer corn crop almost defined, the focus is on the possibility that China starts absorbing some volume from Argentina in the first half of 2021, since Ukraine and Brazil are not selling now yet. The other possibility is that China will keep buying from these other two suppliers from July to contain the concentration of purchases only with US corn. On the one hand, this could weaken prices on the CBOT but raise premiums of other exporters. In fact, it is what already happens with prices in Brazil being negotiated above 100 cents for the second half of the year.

         Agência SAFRAS Latam

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