Corn prices are rising awkwardly! Two major events are at odds—what’s next for the market?

11 month has only just passed 5 days, and corn has risen for 5 days, but the gains have been awkward.

 

For example, the number of trucks at the gate in Shandong is decreasing day by day, but prices have only moved by a little over ten yuan, and few plants keep raising prices. Basically, you raise them today, I raise them tomorrow, and someone else raises them the day after—taking turns.

 

It’s basically the same in Northeast China: prices go up every day, but it’s a different product or supplier each day.

 

As for the futures market, it was much the same: small rises and small falls, with no major movement.

 

Clearly, this was a stalemate.

 

However, in month 11, corn will face 2 major events.

 

 

The first major event: a large volume of corn stored directly on the ground.

 

These are the boots the market has been waiting two whole months for.

 

The situation in the Northeast right now is, simply put, a gap between two rounds of increased supply. The peak period for direct-purchase grain has passed, and the window for the concentrated release of ground-stored grain has not yet arrived.

 

During this period, if grain does not come onto the market in large quantities, prices will be supported. In addition, weather conditions are supportive: lower temperatures and snowfall make it easier to store grain, so grain holders are in less of a hurry to sell.

 

But ground-stored corn will eventually come onto the market, because the corn harvest is too large for everyone to hold on to their grain.

 

So by the end of 11 and the beginning of 12, this grain will probably have to be moved.

 

The second major matter is procurement for the reserve warehouses.

 

The reserve is also making purchases now, but they are basically just an appetizer; large-scale buying has not yet begun. By 11 month, however, things will basically be gearing up.

 

Moreover, judging by transactions over the past few days, the unsold rate is very high.

 

For example, on 11/2, the Heilongjiang branch purchased about 4.4 ten thousand tonnes of corn, but none of it was sold. On 11/5, the Heilongjiang branch purchased about 5 ten thousand tonnes of corn again, and only 6% was sold.

 

Meanwhile, on 11/3, the Tongling Storage Company of the Storage and Transportation Company purchased 1 ten thousand tonnes of corn, and all of it sold at the reserve price of 2350 yuan/tonne. But when it purchased 1 ten thousand tonnes again on 11/5, the reserve price was between 2330 and 2350 yuan/tonne, yet none of it was sold.

 

What does this mean?

 

This indicates that reluctance to sell at current prices is growing in the market, and sellers are no longer accepting this price.

 

As we also said yesterday, if this trend continues, the reserve grain depots will have to raise prices to keep purchasing grain.

 

In 11 month, the reserve grain depots will also basically need to ramp up to full-scale purchasing. If the reserve grain depots raise prices, grain-using businesses will have to raise their prices too.

 

These are the 11 major developments facing corn in 2 month: one is increased supply, and the other is procurement. The two offset each other—which will prevail?

 

There is considerable disagreement in the market right now.

 

For example, one view is that corn cannot fall further because it has heavy support at 4.

 

The first measure is to withhold sales.

 

On the one hand, some farmers genuinely aren’t in a hurry to sell their grain for cash because they don’t need the money yet. On the other hand, planting costs rose last year, so selling at this price would mean a real loss, and they don’t want to sell.

 

Market volume trends do indeed reflect this point: it is not that the grain cannot be transported out, but that people do not want to sell.

 

The second layer is the support provided by the reserve.

 

The purchase price offered by the reserve depot has always been seen as a barometer for the corn market. As mentioned earlier, the market is not responding to prices now, so the reserve depot will probably have to raise its price to buy grain.

 

So if the reserve stockpile raises its prices, corn is less likely to plunge.

 

The third pillar of support is the essential need for further processing.

 

Although pork prices have plunged, demand from deep processing remains, and there is also additional demand. Even though some operations are still theoretically operating at a loss, they do not dare to shut down, because stopping and restarting would cost more.

 

Therefore, essential restocking for further processing is also a source of support.

 

The final layer of support is alternative exit options.

 

Since the end of the minimum purchase price policy, wheat has risen in price, although not as sharply as it did last year. The price gap between wheat and corn has also widened considerably. Wheat is no longer a viable feed substitute, and feed companies have shifted their purchasing focus back to corn.

 

However, another view holds that once corn supplies ramp up, the market simply cannot withstand the pressure.

 

First, the corn harvest is abundant, and supply pressure is very real. Moreover, some grain holders still need to cash out before the Chinese New Year, so this wave of increased supply before the holiday is unavoidable.

 

Second, carryover inventory from last year was high.

 

This year was already expected to be a bumper harvest, and with last year's carryover also estimated at around ten million tonnes, this amounts to double the pressure.

 

Third, port inventories are also high, which is another clearly visible source of pressure.

 

So, what will ultimately happen to corn?

 

I think it may not be quite so pessimistic. Although corn is indeed under considerable pressure, agriculture is driven by policy. Whether corn can be supported depends on supply and demand, market pressure, and sentiment on the one hand, but also on policy on the other.

 

For example, the imported corn auction originally scheduled for 11 month 3 was suddenly canceled. This sent an important signal to the market: policymakers may be making way for the new crop.

 

And based on this signal, it also means that policymakers are unlikely to stand by and let corn prices plunge without intervening. After all, corn is our country's number one crop, affecting people from north to south. So normal price fluctuations will certainly occur, but the likelihood of a sharp drop in corn prices is diminishing.