IndustryDomestic supply and demand fundamentals and market outlook for corn and wheat
On the morning of October 18th, the 6th China Grain Trading Conference opened in Wuhan, Hubei Province. The exhibition area of the conference was 60000 square meters, and over 3000 enterprises and more than 20000 people from 31 provinces (regions, municipalities) across the country participated in the conference. The conference will hold a "Grain Policy and Market Situation Analysis Meeting", and this article is a summary of the author's keynote report "Domestic Corn and Wheat Supply and Demand Fundamentals and Market Outlook".
Looking back at the long-term price trend of corn, the author believes that the market after 2008 can be roughly divided into several stages: the period from 2008 to 2015 when there was no temporary storage and purchase, the policy defined the bottom of the market and the auction top, the period from 2016 to 2020 when there was a slow bull market with price increases due to destocking, and the period from 2020 to 2014 when there was no gap to rebalance.
There have been 5 downturns since 2021, from the end of May to September 2021, from late May to July 2022, from late March to mid May 2023, from October to December 2023, and from July 2024 to the present. These major market declines have several characteristics: absolute amplitudes range from 13-15%, mostly due to resonant declines in commodities, and the characteristics of bottoming out are different each time, including different factors such as policies, time, costs, and weather. Looking ahead to the future, it is expected that the short-term fluctuations will be weak. After the new grain is launched this year, seasonal selling pressure still exists, and the attitude towards channel and downstream warehouse construction remains cautious; Mid term oscillation builds bottom and strengthens, internal and external linkage weakens, focus on policies; The long-term market will continue to squeeze the planting cost, especially the land rent cost, for the next year.
According to JCCE estimates, the overall land rent in Northeast China's production areas will show a downward trend over the next 24 years, with significant differences in the magnitude of the decline. Among them, the area around Changchun has the highest reduction rate, with some areas reaching 5000-7000 yuan/hectare. The total cost of renting land in Jilin region has decreased by 3000 yuan/hectare, and in Heilongjiang region it has decreased by 2300 yuan/hectare, with a decrease rate of about 12% -14%. Under normal production expectations, if the total cost of land parcel is calculated, the cost of wet grain in various regions of the production area is basically below 0.82 yuan/jin, and the cost of trade grain arriving at the port may be within 2200 yuan/ton. Based on the autumn production measurement, it is expected that the area and yield of Heilongjiang will both decline, while the yield of Liaoning will significantly decrease. This is similar to our previous research in Heilongjiang. This year, the overall yield of corn in Heilongjiang has declined due to weather factors, with a significant decline in the eastern region of Heilongjiang. Affected by the decline in land rent, planting costs have generally significantly decreased this year. However, the opening price of new grain is relatively low, and due to seasonal selling pressure, prices have shown a trend of opening low and moving low. Before and after the National Day holiday, there will be a temporary impact on the direct collection of grain by farms, and the willingness of grassroots farmers to sell will decrease. For downstream enterprises and traders, the attitude towards acquisitions this year is cautious.
At present, due to the seasonal selling pressure in the production areas, the liquidity of port collection in the production areas has significantly increased, and the favorable prices in the north and south ports have also driven the operation of corn spot trade flow. Before the National Day holiday, spot prices in North China experienced a sharp decline, while Shandong quickly rebounded after breaking 2000, driving the price difference between North China and Northeast China out of its abnormal value. This may provide some guidance for the trend after the release of selling pressure in Northeast China.
At present, the immediate import profit of corn is around 200, but due to quota control and import restrictions on substitute sorghum and barley, the internal and external linkage has weakened. According to customs data, from October to August, the annual import scale of corn, sorghum, and barley in the second-hand market was 23.16 million tons, 7.37 million tons, and 14.96 million tons, respectively, an increase of 6.11 million tons, 2.98 million tons, and 7.41 million tons compared to the same period last year, which also had an impact on domestic corn. However, from the perspective of monthly import volume, the monthly import volume of corn has significantly decreased since April, which also reflects a decline in the internal and external linkage attributes. As for domestic substitution, the old crop has not launched targeted auctions for feed rice, and the current price difference between wheat and corn in China is high. It is expected that corn will be the most cost-effective source of feed energy in China in the fourth quarter. According to data from the Feed Industry Association, in the first three quarters of 2024, the total output of industrial feed in China was 227.87 million tons, a year-on-year decrease of 4.3%. According to the sample data from Steelｕｎｉｏｎand Yongyi, since May, the monthly growth rate of pig feed has been increasing month by month, and the demand for feed in the fourth quarter is expected to further increase
According to the September corn supply and demand report of the National Grain and Oil Information Center, in 2024, the soybean area in Northeast China will increase, competing for corn area. However, the northwest and southwest production areas will increase more, and the domestic corn planting area is expected to increase slightly. It is expected that the national corn planting area will reach 666 million mu in 2024, an increase of 2.7 million mu or 0.4% compared to the previous year. It is expected that the yield of corn per mu will be 438.5 kilograms, an increase of 3 kilograms or 0.7% compared to the previous year; The corn production was 292 million tons, an increase of 3.16 million tons or 1.1% compared to the previous year. It is expected that the domestic demand for feed farming will stabilize and rebound, while imports of sorghum and barley are expected to decrease in the new year. The amount of wheat and rice for feed is expected to decrease, and the consumption of corn for feed is expected to structurally increase. In 2024, the domestic corn deep processing capacity will continue to increase, the industrial chain will continue to extend, and industrial consumption will continue to increase. In September, it is expected that the consumption of corn feed in 2024/25 will be 199 million tons, an increase of 8 million tons year-on-year, with a growth rate of 4%; The corn industry consumed 80 million tons, an increase of 2 million tons year-on-year, with a growth rate of 2.5%. It is expected that China's corn imports will be 9 million tons in 2024/25, a year-on-year decrease of 14 million tons.
For the domestic wheat market, according to the national grain and oil confidence mid September supply and demand report, the domestic wheat supply is relatively sufficient. It is expected that the wheat yield per hectare in 2024 will be 5.926 tons, an increase of 145 kilograms per hectare year-on-year, with a growth rate of 2.5%; The expected wheat production is 1400.7 million tons, an increase of 3.48 million tons year-on-year, with a growth rate of 2.5%. It is expected that the import volume of wheat in 2024/25 will be 7 million tons, a decrease of 46.2% compared to the previous year. The domestic consumption of wheat for consumption in 2024/25 was 91 million tons, a year-on-year decrease of 1 million tons or 1.1%. The price difference between wheat and corn is significant, and the advantage of wheat as a substitute for feed has decreased. With the development of industries such as wheat processing and brewing, the consumption of wheat in the industry is expected to increase slightly. It is estimated that the domestic consumption of wheat for feed, seed and industrial use will be 38 million tons in 2024/25, a year-on-year decrease of 6.1 million tons, or 3.8%.
Recently, the country has continued to release additional storage points, and the number of additional storage points purchased in the city has increased to 436, which has led to a greater increase in wheat prices in Hebei and Henan provinces than in other major producing provinces, giving market confidence. Previously, the market referred to the minimum purchase price policy and expected that daily wheat storage would stop on September 30th. However, after the National Day holiday, the China National Grain Reserve continued to purchase in the city, reflecting the determination of relevant departments to stabilize the market. Short term volatile operation, 2400-2500, pay attention to the peak demand season in the fourth quarter and the wheat corn price difference
Overall, it is expected that the annual price center of domestic corn will move downwards, with a rhythm that may first suppress and then rise. Beware of the deviation of consistency bearish sentiment. It is expected that the main operating range for the next six months will be between 2050-2350. Pay attention to factors such as the extent of cost support falling below, wheat price difference, and import costs.
