Sep 24 / Ignacio Espinola

What is going to happen with Corn?

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China's corn import pace has slowed down a lot this year. However, the Chinese Stock/Use ratio continues to be around the 68-70% level that the government targets in order to feel comfortable.
Brazil export corn program is underperforming versus previous year.
On the US side, exports are not looking as they where on this previous year.


Imports, exports and current situation

Much has been said about current soybean China purchases, where the Asian giant has been buying above normal volumes due to the fear of a new economic war with US and we could think than this same strategy will be repeated for other commodities but let`s have a look at the actual numbers.
 
Historically speaking, China started importing volumes above 20M Mt of corn in 2020 (imports 2019 – 7.5M mt vs imports 2020 – 29.5 M mt) and that was the year they started buying from the US. Two years later, they cleared the imports for Brazilian corn which came into the equation and took part of the shared that US was having alone for the first 2-3 years.


Corn - Talking about numbers

If we take a look at the numbers, China on this 2024 has reduced it`s purchase pace versus 2023. In 2023, according to China customs, they received 8.7M mt versus the 3.3M mt received this year which represents only 38% of the amount on 2023.

When we take a deeper look and we check the origins, the numbers have not changed much Y-o-Y with Brazil being the main origin with close to 48% and with U.S. being the second one with 44%. From the remaining 8%, 5% corresponds to Argentina and the last 3% is shared by Canada, Russia and Ukraine.

One of the reasons about this low import pace is the Chinese SnD, where this year Chinas production for 23/24 crop was expected at 288.8 Mmt, a 4% increase versus the 277.2 Mmt of the 22/23 crop. For 24/25 the USDA is expecting a 292 Mmt. This 2024/25 crop is supposed to be the fourth- consecutive record-large corn crop.

When we look at China’s imports, on 23/24 China imported 23M mt, 5M mt more versus the precious year and it’s expected to repeat the same 23 M mt for this current crop year. Finally, the third variable we must consider is the demand, which has been growing from 299 in 22/23, 307 in 23/24 and 313 in 24/25 crop.


China Imports Jan-Aug 2023

Source: USDA

China Imports Jan-Aug 2024

Source: USDA

If we sum all those variables, we get to the conclusion that China has been trying to maintain an ending stock level that allows the country to have a 68-69% of stock use level. clearly this has been the government strategy at least for the last 5 years.

Another reason for this slow down on imports could be that the country is focusing more on the soybean side rather than the corn side. Finally, Brazil and US good crop expectations should flood the market with available corn pushing the prices down which may lead the Chinese government to wait for the cash flat prices to go down.


China Supply & Demand Balance

Source: USDA


China Stock/Use

Source: USDA


What is going to happen with prices

The key now is to understand how the prices are going to react to Brazil and US corn exports. On the Brazil side, this year the export program has been delayed due to an extended soybean export program thanks to outstanding purchases from China. If we compare numbers, this year Brazil has exported only 17M mt by the end of august which is 30% less versus the 25 M mt august 2023 exports. On the US side, the Jan-Aug 2023 period had 4.55M mt of corn exported to China while the Jan-Aug 2024 period has 2.77 M mt, 29% less Y-o-Y.

All factor indicates that China will not be able to import as much as the previous years. We only have 4 months to end the year, and if we compare numbers, we are also far beyond 2023. Corn imports to China in September 2023 where 4.25 M mt, but so far this year they are at 0.27 M mt. Same trend happens with Brazil corn and US corn exports so all indicates that this year China import numbers are going to be lower than 2023 but at the same time, Brazil export numbers and us export numbers should also be lower than the previous year.

In conclusion, we have analyzed China’s import pace and its effect on Brazil and US. We expect that China will be importing less than the previous year, and this will also generate a surplus in US and Brazil SnD. Considering the fact that this year Brazil and US crop are going to be big, it does seem that we will have a market flooded with corn which should push the prices down in order to incentivize buyers. Finally, funds are still short Corn, even though they have been slowly covering their position which could indicate that they are looking at some bullish fundamentals for now, otherwise they wouldn`t be covering their shorts. To conclude, we will have more physical corn available, and we are looking to a very good crop for this year which would possibly be a bearish factor for the cash prices.






CBOT Corn – Funds Net position ('000 lots)

Source: CFTC

Weekly Report — Grains and Oilseeds

Written by Ignacio Espinola
ignacio.espinola@hedgepointglobal.com
Reviewed by Thais Italiani
Thais.Italiani@hedgepointglobal.com
www.hedgepointglobal.com

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