Last Friday, the volume of Shandong corn finally surged to more than 800 truckloads. Needless to say, prices naturally stopped rising. Then this Monday, the volume fell back to more than 500 truckloads.
Why did it fall?
It was because of rain again.
But this has made the market more certain about fluctuations in Shandong corn, which are clearly still centered on arrivals and weather fluctuations.
But lately, Northeast China corn has become increasingly hard to read.
How so?
Harvesting and arrivals are clearly underway, and the crop is clearly a bumper one, yet Northeast China corn keeps seeing price increases day after day. Everyone had been waiting for that drop, but they waited and waited without seeing one; instead, prices kept rising day after day.
This has also left many people wondering: what exactly is going on with corn in Northeast China?
As the saying goes, the stranger things seem, the more likely they are to conceal something major—and that something is often either an opportunity or a risk.
In fact, it could be said that the Shandong corn market is playing its cards face up, while the Northeast market is playing its cards close to its chest.
The face-up approach is easy to understand: it is still the same old routine, unchanged. Market arrivals rise and fall with the weather and sentiment, while prices move with the volume of arrivals.
If any one of these variables changes, the others will fluctuate along with it.
And this change is out in the open, right there on the table for everyone to see.
But the Northeast is different.
You could say it’s going up, but it also goes down; and you could say it’s going down, but it also goes up every day.
Why is the market like this?
There are many reasons.
For example, the first factor is farmers’ reluctance to sell.
As direct grain purchases wind down and the peak period for grain coming onto the market passes, corn enters a transition period. Meanwhile, reserve depots are frequently making purchases, with some even continuously raising their prices, giving the market a great deal of confidence.
Corn is China’s largest staple grain by both planting scale and output, so it is also the most affected by policy. This is especially true when newly harvested corn first comes onto the market; market direction is essentially determined by policy.
So at this point, the actions of reserve warehouses become the focus of widespread attention. Expanding purchases and raising prices naturally boost market sentiment.
The second factor is the weather.
As luck would have it, the weather also played a part. Just as reluctance to sell was beginning to emerge, the weather gave it an extra push.
As temperatures drop and heavy snow falls, grain is easier to store, and the reluctance to sell becomes stronger.
The third factor is that the issues with North China corn are still unfolding.
In the previous article, we mentioned that some toxin indicators in North China corn have been unstable this year, leading to an increase in rejected deliveries by feed companies recently. As a result, some buyers shifted their focus to corn from Northeast China.
Northeast China corn has been good quality and low in moisture this year, making it well suited to fill this gap.
As mentioned earlier, a rough estimate suggests that Northeast corn already has a theoretical advantage when shipped to rail terminals in Shandong. However, due to factors such as the weather and freight costs, it has not yet entered the region in large quantities.
But this also means that, once the opportunity is right, exports of Northeast corn can open up immediately.
So, with these expectations and grain that can be stored, who would be in a hurry to sell their grain?
But on closer inspection, although prices for Northeast corn have been rising every day, the increases have generally been in corn that was previously priced relatively low.
Those that have already risen have either remained unchanged or, on the contrary, fallen again.
What does this mean?
It means that sentiment seems bullish, but in reality nobody has dared to make a big move.
So this kind of rise can easily create the illusion that the upward momentum of Northeast China corn is almost impossible to contain and is about to burst forth.
But in reality?
It was more of an oversold rebound.
Corn in 10month fell as sharply as hog prices in 10month.
In many parts of North China and the Huang-Huai region, farm-gate grain selling prices once fell below the cost of production. Northeast China was no better, of course; some grain prices even fell below 2000 yuan/ton.
The market tends to rebound after becoming oversold; a recovery is inevitable.
So I think the rise in the Northeast is more of a recovery after being oversold, rather than a prelude to a major rally.
Because, however you look at it, current market conditions do not support a major rally in corn.
For example, supply pressure is high.
This year's corn harvest is abundant. That's one factor. We also need to consider that the amount of corn carried over from last year was high. Together, these make two sources of pressure.
Pressure is increasing, but what about demand?
It is actually decreasing.
Demand from deep processing has increased somewhat, but the bulk of corn demand comes from feed. You don't even need to look at the data; you can figure it out intuitively: with hog prices having fallen so far, what could possibly increase feed demand?
Even if corn regained market share thanks to its better value for money compared with wheat, the sharp drop in total demand still means it cannot provide support overall.
So the supply-and-demand situation has not changed at all.
This makes it clear that this rally was not driven by demand, but built up by sellers’ reluctance to sell.
Purchases by reserve warehouses over the past two days have also confirmed this.
On the 11th day of the 2 month, China Grain Reserves Corporation’s Grain Storage and Transportation Company purchased 3.7 ten thousand tons of corn at a floor price of 2400 yuan per ton; all lots went unsold.
On the same day, China Grain Reserves Corporation’s Heilongjiang Branch purchased 4.4 ten thousand tons of corn at floor prices ranging from 2050 to 2120 yuan per ton; all lots also went unsold.
What does this indicate?
It indicates that the market is holding back sales and does not accept this price.
So it is clear that the price increase was driven by farmers holding back their corn for sale.
But sentiment is often the most fickle thing. People may hold back their corn for sale today, but panic tomorrow; it is often the hardest thing to predict.
So the corn market is now entering a period of tug-of-war. This means that the bullish and bearish sides are revealing their cards, and in the end, it comes down to whose hand is stronger.
The most unfavorable factor for corn this year is that the Lunar New Year falls earlier than last year. This means there is less time for corn purchases and sales before the holiday. For those who need to sell their grain before the holiday, time is limited.
So, looking at the rise in corn prices again, the situation is different. It may be an opportunity for some people, but for others, the risk is actually greater.