By Peter McMeekin
Corn is clearly on top of China’s agricultural commodity shopping list at the moment, with the pace of new crop purchases out of the United States running at unprecedented levels for this time of the year. There were no US sales to China reported last Friday, but it has been quite the ritual over the past two weeks with ‘flash’ sales announced on nine of the previous ten working days.
Bookings of US origin corn last week alone totalled 5.644 million metric tonne (MMT) for the 2021/22 marketing year, which commences on September 1. This included the third-largest ever one-day sale to China of 1.7MMT, which the United States Department of Agriculture announced last Monday. Announcements of 1.36MMT, 1.36MMt and 1.244MMT followed on Tuesday, Wednesday and Thursday, respectively.
The China corn story is not new, with the USDA pencilling them in for 26MMT of imports in both the 2020/21 and 2021/22 marketing years. Last week’s activity pushes China's new crop US corn purchases past 12.1MMT since the splurge commenced earlier this month. That equates to more than 19 per cent of the USDA’s projected US export program for the 2021/22 marketing year and 46.5 per cent of China’s import estimate.
In 2020 it took until mid-August for the US to sell 12MMT in total, itself a record pace at the time. By the official start of the 2020/21 marketing year on September 1, 2020, US corn sales to the Middle Kingdom stood at 8.2MMT, with the biggest volume month being July 2020.
If the current purchasing pace is maintained, it won’t take long for the market to aim quite a bit higher, especially when considering that China’s new crop corn purchases out of Ukraine are already as high as 6-7MMT. It seems they simply want to get as much coverage as possible with Brazil’s crop getting smaller and the US farmer chasing an ambitious yield goal of 179.5 bushels per acre with the unknown risks of an entire growing season ahead of them.
Additionally, as China continues to step up to the plate for new crop, they have given no indication that the remaining old crop purchases will not be shipped. The strength in the December corn futures contract and the extremely low cancellations to date support that notion.
As of May 13, old crop US corn sales to China totalled 22.9MMT, and there was still just over 10MMT, or 44 per cent of the program, to be shipped ahead of the new crop export campaign.US export inspections for the current marketing year are almost 80 per cent ahead of the same time last year.
According to customs data, China imported 8.58MMT of corn in the first four months of the calendar year. This is an increase of 301 per cent on the same period in 2020 and means they have already exceeded their tariff rate quota (TRQ) for this year.
Corn imports from all origins in April totalled 1.85MMT, with 1.3MMT coming from the US, the second-highest monthly discharge on record. This was up from 1.08MMt in March and was not far behind the record of 1.45MMT, set in January of this year. On the other hand, imports from Ukraine were the lowest since November 2020 at 536,820 metric tonne.
This month’s World Agricultural Supply and Demand Estimates pegged Chinese corn production for the 2021/22 season at 268MMT. This is a 2.8 per cent increase on the 260.67MMT that was reportedly produced in the current season. The growth is primarily due to a higher planted area, driven by significantly higher prices and government policy aimed at decreasing the nations corn import program.
China’s Ministry of Agriculture and Rural Affairs has reportedly prioritised the planting of grain on all unplanted land and set a goal of an additional 667,000 hectares sown to corn in key growing areas. However, the potential corn production gains will be limited by competing government policies that encourage soybean production. There is also a fear that any new land bought into the grain production rotation will be of poor quality and low yielding.
On the demand front, the WASDE report called 2021/22 Chinese corn demand 294MMT, up 5MMt, or 1.7 per cent, from 289MMT in the current season. The increase is driven entirely by a 5MMT, 2.4 per cent increase in demand from the domestic stockfeed sector of 211MMT.
The high domestic corn prices relative to grain alternatives has reportedly led to a dramatic reformulation in Chinese stockfeed rations. The corn inclusion rate in swine mixes has dropped from 40 to 30 per cent, and in poultry blends, it has declined from 65 to 55 per cent in recent months. While the growth in stockfeed consumption is forecast to continue, the corn inclusion rate will depend more heavily on relative domestic prices than it has historically.
China’s aggressive purchases of new crop corn not only highlight its growing need for corn but maybe also signals its belief that the Brazilian crop will be much smaller than USDA is forecasting. The apparent implication of China’s old and new crop bookings is that the WASDE is alarmingly low on Chinese corn imports for both old crop and new crop, and therefore too low on US exports in both marketing periods.
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