The settlement price of Chinese corn futures hit new contract highs as domestic supply continues to be a challenge. The most actively traded corn futures on Dalian Commodity Exchange for delivery in January hit 2,575 RMB/tonne on Oct. 14, the highest on record.
China’s domestic corn stocks have declined, but recent market price action suggests stocks are much tighter than the numbers the USDA is presenting. Either corn prices in China must fall or the USDA will need to adjust downward its China corn inventory numbers. Gro has three versions of China’s corn balance sheet on our platform, as different sources present varying estimates.
China regulates corn imports with a tariff-rate quota (TRQ) that places an upper limit on how much corn can be imported at favorable tariff rates. China has already committed to buying more than that amount from the US alone for the 2020/21 US marketing year, raising concerns among market participants about China’s true level of domestic corn inventories and supply needs.
Last month, the Chinese government announced an unchanged TRQ for corn imports for 2021. The TRQ includes a corn import quota of 7.2 million tonnes annually, which carries a duty of 1%. The duty jumps to 65% for imports above the 7.2 million-tonne quota.
The US currently has 10.116 million tonnes of US corn exports on the books to China and 3.719 to “Unknown,” most of which are likely destined to China. Furthermore, Ukraine has shipped 4.3 million tonnes of corn to China so far in 2020 (Jan-Aug), a 1 million-tonne increase versus the same period last year. The United States and Ukraine are the main suppliers of corn to China.
A tightening of corn inventories in China would have significant implications for the global corn balance sheet. Right now, harvest uncertainties still remain in the US. In South America, dry conditions are delaying planting of the new soybean crop, which could affect both soybean and corn prices for months to come. Grain markets are sure to remain in focus as investors continue to take note of the changing fundamentals in the sector.
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