Do you believe in the 20 million tons of corn storage increase?

Preface: On October 23rd, corn rebounded significantly by more than 2% from its low point, and there are rumors in the market that the Northeast region will store 20 million tons of corn. There are no specific acquisition criteria, acquisition plans, or even short essays, only a rumor circulating in the group that 'there was a meeting yesterday afternoon, and Northeast China increased its reserves by 20 million tons this year'. Without any other information, the market was directly ignited with just one 'three no' message.

Do you believe in the 20 million tons of corn storage increase?

01. Market: Believe it or not, I believe it anyway

There is a saying that goes: One bullish candlestick changes emotions, two bullish candlesticks change opinions, and three bullish candlesticks change beliefs. After a week of pressure reduction, the corn recovered the lost land in a week like a big sun storm. With the momentum of a piercing arrow and thousands of troops coming to meet, will this rapid rebound sweep away the pessimistic sentiment in the market earlier?

According to the post market position data, COFCO's net long orders increased by 13657 on that day. And this large-scale increase in holdings is not a rash move. On the 21st of two days ago, COFCO's short positions decreased by 14239 to 74421, and its net holdings increased from short to long, with a net long position increase of 19964. The recent move made by the top player in the market, combined with today's "three no's" news, is not difficult to arouse people's imagination.

Under the sustained attack of long positions in the morning, short positions began to quickly exit in the afternoon and accelerated their closing in the evening, leading to a rapid rebound in the market. The market voted with their feet to indicate a 20 million ton increase in storage, I believe it first!

So looking back, let's see what changes this 20 million tons of corn storage will bring to the balance sheet?

02. Domestic Corn Supply and Demand Balance Sheet for October

The domestic corn supply and demand balance sheet for October continued to lower the predicted import volume by 2 million tons compared to September, while also reducing industrial consumption and export volume by 1.005 million tons. The corresponding annual surplus continued to be lowered to 750000 tons. It can be said that we are always striving to maintain a tight balance in the supply and demand situation of new season corn, and within a limited expression, we are sending a signal of supply and demand expectations to the outside world. To boost the market and maintain market confidence.

What kind of changes would occur to our balance sheet if the market adds 20 million tons of storage? It is obvious that we have created an artificial market gap, which can be controlled by us to choose whether to block or not at different times. To stabilize market fluctuations and keep the market running in a healthy state.

So if we don't look at the position changes of the main corn contract, and don't infer some groundless things from it, and then delve deeper into why the market believes that the country will still increase reserves in an already extremely tight supply and demand expectation?

Corn planting costs for the years 03 and 24/25

As shown in Figure 5, it can be seen that the planting costs of Heilongjiang, Jilin, Inner Mongolia, and Liaoning provinces in Northeast China in the 24/25 fiscal year were 0.87 yuan/jin, 1 yuan/jin, 0.83 yuan/jin, and 1.05 yuan/jin, respectively. Based on our current port price, if we extrapolate the purchase price of the production area, even if all the profits in the intermediate links are squeezed out, the probability of farmers losing money on farming this year is still widespread.

The food security red line for China's 1.4 billion population is fundamental to the country. Whether it is the central government's No.1 document or the policy guidance of the Ministry of Agriculture and Rural Affairs, the food security red line cannot be crossed. To ensure China's food security, making farmers earn money from farming is the most basic element of security. Only in this way can we ensure the enthusiasm of farmers for farming and effectively guarantee China's food security.

So from the current valuation of corn, recent trends in spot and futures markets, the market is more willing to believe that this "three no" information has a certain degree of authenticity.

04. Summary

This article infers the current market response from the perspectives of recent changes in the holdings of major corn contracts, supply and demand expectations for the new season of corn, and planting costs. If we simplify things, from a trading perspective, it means that when the valuation is low enough, any reversal expectation may be reasonable, and the market is willing to trust it first, and then gradually verify the authenticity of the news.

So, adding 20 million tons of corn storage, do you believe it today?