Porto Alegre, February 1, 2021 – The US corn market focuses on the movement of prices and demand in China. After an attempt to reverse the price curve on the CBOT to levels below USD 5.00/bushel, China seized the moment to resume purchases and recreate the price support environment. Definitely, it is no longer possible to use data of 190/200 million stocks in China, as it is an importer and with high prices. The focus remains, therefore, on the price difference between the Chinese domestic market and the export price in the United States, which determines more or fewer corn purchases by China.
Corn prices on the CBOT started to operate with sharper highs with the resumption of purchases by China last week. The price behavior observed in the previous week seems to have started the movement of resumption of imports in the face of a strong price differential between the two markets.
We must understand that the Dailan futures may not reflect the real picture of the Chinese market in terms of prices and needs. Therefore, observing only the prices on this exchange can cause a certain distortion in relation to the real picture of local supply. For example, while Dailan posted lows in the previous week, even following the CBOT, the Chinese physical market showed no break in its price sequence.
And it is at this point that the movement of corn purchases by the Chinese market was reactivated. Basically, the only short-term purchase option is the United States, given that Ukraine, Brazil and Argentina do not have large volumes and their prices are high at this time. So, the only possible source of good import volumes remains the United States until the rest of them can recover supply capacity. Definitely, it is no longer possible to follow the thesis that China holds 190/200 million tons, as this does not match the movement of prices and imports of the world’s second-largest corn consumer.
Of course, the presence of China as an importer and having its domestic market with sharp hikes creates an environment of apprehension at global level in view of the aggressiveness and volumes that are involved in this potential movement of purchases. There is a context of divergences in the numbers indicated in the international market for this volume of purchases already made by China in the US market.
So far, the record of US sales to China involves 5.9 million tons and it must be updated to 7.1 million tons with last week’s purchases. This figure involves the US business year, from September 20 to August 21. There are no data for the closing of purchases from Ukraine to date. Brazil and Argentina volumes were punctual. Therefore, the survey is far from what is indicated by the international analytical media and even analysts in the Brazilian market who seem to be unaware of the reality of information sources.
The fact is that the difference in prices between the Chinese market and those pointed out by exporters makes purchases by China feasible. This demand is likely to be concentrated in the US in the first half of 2021, which helps the CBOT to maintain firm prices. March tested the week’s high at USD 5.43/bushel, and it would be no surprise if new purchases from China make these prices rise until August.
The schedule of potential events until the 2021 US harvest can be summarized in:
– Price movement and import decisions in China;
– Possible increase in the Chinese import quota from 7 to 12 million tons. Quota without taxation;
– Entry of the Argentine crop in April and the possibility of some purchase of corn from this origin by China;
– US planting intention on March 31st. Corn area may remain stable at 91 million acres for 2021, with most of the growth going to soybeans, with a potential of 90 million acres;
– Possibility of increase in the planted area in China from 41 to 43 million hectares, suggesting, under normal weather conditions, a record Chinese crop;
– Climate in both the United States and China between May and September;
– Arrival of Brazilian second crop in July and Ukraine crop in September.
There is no doubt that this set of information will continue to volatilize prices on the CBOT until the confirmation of the new US crop.
Agência SAFRAS Latam
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