The new corn harvest has begun, and the market is in a terrible state.
However, this was expected.
But corn prices are falling more and more outrageously.
After the previous wave of sharp declines in North China, another wave has arrived. More than a thousand trucks are now arriving at Shandong deep-processing plants, and prices are plunging even more steeply.
Northeast China is in even more trouble, with prices continuing to plumb new depths.
By now, I think everyone is probably wondering: at this rate, when will the decline in corn prices finally stop? Or, in other words, where is the bottom for corn prices?
I think it depends on 3 things:
First, the pace of acquisitions.
A drop in corn prices is nothing new. Prices fall every year during the new-corn harvest, unless extreme weather affects corn production; otherwise, the concentrated harvest causes corn prices to drop rapidly.
This year is no exception, of course.
Although there has been plenty of weather-related hype in the past, current farming techniques cannot be overlooked. In particular, considerable effort has gone into increasing yields. As a result, with the planted area remaining relatively stable, the share of high-yield corn has increased significantly, driving continued bumper harvests in overall corn production.
Does a bumper corn harvest always mean prices will fall?
Not necessarily. There will certainly be a period of fluctuation. When the decline will reverse depends on the pace of purchasing.
Generally, newly harvested corn has a high moisture content and is not suitable for storage, so farmers are more motivated to sell at this time, resulting in a large volume of corn entering the market.
This is precisely when the major demand-side entities have the pricing power.
But as the saying goes, people buy when prices are rising, not falling. Although corn is cheap, everyone is waiting for it to get even cheaper, so there has not been much stockpiling either.
On top of that, feed demand is expected to be average, and imported grain is available as a supplement, so there is even less inclination to build up large stocks.
So, at present, the actions of the main demand-side participants are not particularly strong.
Trade participants also dare not act rashly, mainly because they have suffered too many losses. So they are all watching for signals—but what signals?
Once the “中字头” companies begin acquisitions, their full-scale involvement will send a stabilizing signal to the market and encourage other participants to take action as well.
Only then may corn prices stabilize.
Second, farmers’ sentiment about selling grain.
Although the market has kept talking about production costs, corn is different from wheat. Wheat has a minimum support price, but corn does not. The view that corn prices are unlikely to fall below production costs is based only on people’s speculation about policy.
But in fact, this depends more on sentiment around selling grain.
When bearish sentiment is strong, willingness to sell is high, and sellers may even rush to sell grain all at once.
But when corn prices fall to a certain level and remain there for a certain period, grain sellers become more reluctant to sell, signaling that corn may be due for a turnaround.
So, is corn due for a turnaround?
Clearly, not yet.
Corn is still falling sharply, and bearish sentiment in the market remains strong. With selling pressure still lingering in some regions, corn is likely to remain under pressure in the short term.
However, as large companies such as COFCO have begun to take action, market sentiment and signals that the market is bottoming out are continuing to emerge. Corn is likely not far from turning around.