China resumes purchases of corn and supports CBOT prices

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     Porto Alegre, February 9, 2021 – The divergence of statistics about the Chinese corn market reaches its peak in the first quarter of 2021. The USDA’s projection for imports of 17.5 million tons this year begins to be confirmed and may even grow in the next reports. Perhaps, this is currently the only consistent piece of data on the supply and demand situation in China, considering that estimating carryover stocks of 190 million tons at this moment seems to us the major point of discussion in the international market. China is also selling wheat from its stocks to the feedstuff sector and bought more than 11 million tons of US corn this business year. The biggest concern is that prices do not stop rising.

     South America has little corn supply to meet global demand at this time. Argentina will only increase its sales from April. Brazil will only resume additional sales in major volumes from July. Ukraine is in its off-season and practically out of exports until September. So, at this moment, the United States has is the only source available in terms of volumes. Therefore, all demand, or most of it, heads for US corn at this moment, almost the same situation that occurred with soybeans in the second half of 2020.

     What is different about the international corn market in 2021? As we have pointed out, basically China and its nonexistent or uncertain stock numbers. We have already pointed out in previous issues that the great risk to the world corn supply is not limited to increasing demand or seasonal factors of production, as was the loss of the US crop in 2020. The greatest risk is the inconsistent information from China. The fact that China does not disclose stocks makes USDA and consulting firms guess the size of stocks, which creates a problematic environment of expectations.

     In this way, the market stopped observing general figures and focused on the price movement in the Chinese market and its differential with export markets as a way of defining the dimension of Chinese imports. This is the movement we have reported in recent issues, that is, the difference between prices in China and the US FOB prices is close to USD 200/ton, making importation possible at any time. Last week there were strong purchases of 6.14 million tons, totaling 11.4 million tons in the US business year, which started on September 1, 2020.

     Prices in China did not fall. On the contrary, the government was forced to release more wheat from its stocks to meet local demand. The fact that corn prices are rising may suggest that China remains in the market for new purchases at any time. The effects for the CBOT, of course, were bullish, with the March contract jumping to levels near USD 5.60/bushel. The fact that the real needs of the Chinese market are not known leaves the environment conducive to aggressive price movements and tensions over the future of global supply.

     Agência SAFRAS Latam

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