Corn on 29 brings a surprise.
More than 400 trucks arrived in Shandong, with little market movement; the surprise came from the Northeast market.
Northeast corn prices have risen again, but not all price increases are alike. So it is not enough to look at whether corn prices have risen; it is more important to understand the logic behind the rise.
So, what is driving the rise in corn prices in Northeast China?
It can be said that the prices have risen in a very measured pattern.
First, prices at reserve warehouses have risen.
For example, the Tangyuan Directly Affiliated Warehouse of Sinograin raised its price by 1 fen to 1.035 yuan/jin on the 28th, then raised it again on the 29th, with prices rising for 2 consecutive days.
As China Grain Reserves Corporation expands its purchasing operations across Northeast China, the overall price center also appears to be moving upward.
This increase by the reserve warehouses has brought about 2 things:
One is that it has given the market confidence.
More precisely, it has given confidence to grain holders.
Corn prices had been in a terrible slump, and market sentiment had also been declining steadily. But since purchases by the reserve warehouses increased, market sentiment has begun to ease somewhat.
In addition, a change in the weather made it easier to store grain, so the reluctance to sell has grown stronger.
Another factor is that the reserve warehouses’ price increase also sent the market a signal that prices had support.
This year’s corn harvest is abundant, and the selling pressure is exceptionally heavy. The sustained decline in corn prices earlier was not entirely due to supply and demand; a large part of the reason was that everyone was waiting to see how far corn prices could fall, hoping to buy at the bottom.
However, as reserves are gradually opened for purchasing, they are also sending a signal to the market that corn has nearly finished falling, which is also conducive to intermediate market participants stepping in.
Secondly, prices are rising among market participants with the capacity to store grain.
This round of increases is interesting. Despite the market buzz, corn prices are not rising across the board; they are rising only for some market participants.
These participants are mainly those with the capacity to store grain. In other words, grain-consuming entities have not generally been driving prices up; they are still maintaining a buy-as-needed pace.
What is more noteworthy is that Jinzhou Port quotes surged today, rising from 2140 to 2150 yuan/tonne yesterday to 2160 to 2185 yuan/tonne.
This was also one of the larger price increases in recent times.
Why did port prices suddenly surge?
It was not driven by demand, because demand for corn is already transparent. With hog prices having fallen so much, nobody is stockpiling feed.
Therefore, the port’s substantial price increase is most likely a passive follow-on increase.
Meanwhile, the incentive for price increases in deep processing remains very weak.
First, there is no shortage of inventory.
Corn inventories for deep processing have increased both month on month and year on year. The operating rate is also not low, standing at a historically high level. Downstream products have improved only slightly, and overall pressure remains considerable.
Although grain holders are reluctant to sell and supply volumes are low, as long as companies have enough, there is no need to raise procurement prices indiscriminately.
On the other hand, the Chinese New Year falls earlier this year than last year, which means the concentrated pre-holiday selling window may come earlier. Companies are also doing their calculations to see whether they can align with seasonal restocking.
So, as you can see, the overall dynamics of the corn market have not actually changed. There is also an imported corn auction tomorrow, and overall corn supply is more than ample.
So, it can be said that the overall framework for corn has not changed. The pressure on corn therefore remains, upside potential is still limited, and the likelihood of a sharp rise in corn prices is very low.
But as we also said earlier, there is uncertainty surrounding corn in 11 month. Is it a risk or an opportunity?