IndustryChanges and Impact Analysis of Corn Starch Industry
Abstract: Starch is an important downstream product of corn, and its price fluctuations are closely related to corn. In recent years, with the increasing impact of by-products, the diversification of starch downstream, and the continuous improvement of industry concentration, the fluctuation of starch corn price difference has also been affected, and the trend of price difference has also undergone some significant changes.
Corn starch is the main component of deep processing of corn. Generally, producing 1 unit of corn starch requires 1.43 units of corn, while also producing 0.22 units of corn fiber, 0.12 units of corn germ, and 0.09 units of corn protein powder. The main uses of corn starch are in starch sugar and sugar alcohols (37%), paper industry (17%), pharmaceutical industry (10%), and others.
The main cost of starch production is corn, and historically, the price difference between starch and corn has remained stable at 300-500 yuan/ton, following the trend of corn. However, in recent years, there have been some changes in the industry, and there have been some adjustments to the pricing model at the margin.
The strongest driving factor for starch prices is its cost expectations, including changes in corn planting area and yield, the pace of corn trade and processing, changes in the sales mentality of grassroots farmers, changes in corn quality, the impact of national policies on raw corn, the impact of substitutes, and so on. Next is the expected supply and demand of starch itself, such as the progress of new production capacity, changes in the resumption of work and production of zombie production capacity, changes in export policies for corn starch, changes in alternative fields, and adjustments to the industrial chain of leading enterprises. At the same time, market mentality and industrial policies will also have a significant impact, especially in recent years, futures trends have provided strong guidance for predicting market prices, and spot prices have also achieved more resonance performance.
1. Industry concentration is increasing
The early concentration of China's starch industry was relatively low, and the industry barriers were not high, especially with Shandong Province as the core, focusing on small and medium-sized production capacity, and the products were mainly commercial starch. Since 2017, with the gradual release of temporary storage corn and the combination of low-cost raw materials and policy subsidies, the industry has been stimulated to develop rapidly. Many new production capacities have been put into operation in Northeast and North China, and groups such as Xiangyu and Xingmao have built new factories in Northeast China. However, some small and medium-sized factories have been continuously losing profits and being eliminated by the market since 2020 due to the rapid rise in corn prices, driving production capacity to further concentrate in the top. By 2023, according to Mysteel research data, there are a total of 50 enterprises in China with a production capacity of over 200000 tons of commodity corn starch. The production capacity of commodity corn starch is 23.97 million tons, accounting for 93% of the total national production capacity. The top 10 enterprises in terms of corn starch production capacity account for 67% of the total production capacity. The production scale of these enterprises continues to expand, and the group is accelerating its layout. At present, the largest starch production enterprise in China is Zhucheng Xingmao, with a production capacity of 5.15 million tons, followed by Yufeng, Shouguang, Jinxiang Biochemical and others.
Corn starch enterprises are mainly distributed in corn production areas, with abundant raw material supply, low cost, and advantages in processing corn starch raw materials. Among them, Shandong Province is a major traditional producer of starch in China, accounting for about 36% of its production capacity, followed by Heilongjiang, Hebei, and Jilin, accounting for 20%, 11%, and 10% respectively. The remaining production capacity is mainly distributed in various provinces and regions in the central and western regions, with a more concentrated distribution of production capacity and a more rational regional layout.
With the development of industry concentration, the starch industry has made deeper explorations in production, cost control, product added value extension, technological innovation, and other aspects. It has also gradually raised the operational barriers of the industry, promoting the development of the corn starch industry towards mature, intensive, and large-scale applications. And core enterprises are gradually starting from pure commodity starch and extending their industrial chain downstream, such as further reducing to amino acids, sugar alcohols, etc., and their competitiveness is also continuously increasing.
At present, the starch industry has entered a surplus pattern, with the industry wide operating rate dropping from 81% in 2019 to 56% in 2023, and market competition becoming more intense. In the current situation, commodity starch itself does not have a strong value-added effect, and can only achieve long-term operation by compressing starch profits, which also forms a certain negative feedback on starch prices.
2. The proportion of corn starch terminal products has been adjusted
The main indicators of concern for corn starch terminals include the startup status of starch sugars (fructose corn syrup, malt syrup) and packaging paper (corrugated paper, cardboard). Starch sugar is the main downstream of corn, accounting for about 37%. In addition to normal downstream demand, attention should also be paid to the impact of substitutes. Under the premise of significant fluctuations in sugar prices, there will be a certain degree of mutual substitution between sugar and starch sugar, which will also affect downstream consumption of starch sugar. In recent years, corn starch has also begun to have a wider range of applications in the paper industry, especially corn modified starch, which plays an important role in the paper industry. Data shows that in the downstream consumption of corn starch, the paper industry accounts for 17.65%, second only to the starch sugar industry. Corn starch is applied in the paper industry, which can improve paper quality, productivity, and pulp utilization. On the one hand, it can serve as an adhesive in the production process of packaging paper such as cardboard and corrugated paper. Its addition ratio in packaging paper is about 4-6%. It is precisely because of the increase in proportion that policies related to the paper industry, changes in imports and exports, and changes in supply and demand in the paper industry have had an increased impact on the starch market compared to before.
Seasonally speaking, starch sugar shows a gradual upward trend during the year, while packaging paper shows a trend of high at both ends and weak in the middle. Therefore, starch inventory often remains low at the end of the year, and profits often perform well during this period. From a macro perspective, the terminal demand for starch is not rigid, so it is more elastic due to the impact of the domestic economic environment. When the macro economy declines, starch consumption is also prone to shrinkage.
3. The impact of by-products on profits and starch is intensifying
The overall price of terminal products produced by deep processing of corn follows the price fluctuations of corn, but there will be a certain offset relationship between each product. If the price of by-products is high, there will be a large elastic space for starch prices; Similarly, if the price of by-products is weak, companies may take measures to raise the price of corn starch to ensure that overall profits are not damaged.
Among the by-products, protein powder and corn germ fluctuate with the price of meal protein. If the domestic soybean meal price remains high, the contribution of corn protein to profits will increase, and its impact weight on prices will also increase. For example, at the end of 2022, with the spot price of soybean meal reaching a high of more than 5600 yuan/ton, the price of protein powder, germ and fiber, the three major by-products of corn, also rose all the way. Although starch suffered from COVID-19's closure and economic downturn, demand was frustrated, and starch income was relatively biased, the price of by-products was high, which also ensured that the profit of starch processing was at a good level.
In recent years, as starch companies continue to concentrate at the top, their capital thickness has also increased. However, the industry's profits are meager, and even after profits turn negative, companies still have to actively reduce inventory. However, with the high prices of by-products in 2022, the ability of starch enterprises to resist starch price risks has been enhanced to some extent. Despite the extremely poor returns of starch, the proactive reduction of production by enterprises is not significant. But if the price of by-products shows a downward trend, in order to ensure profits, enterprises usually support starch prices, which also has a certain boosting effect on the recovery of starch prices; If there is an expectation of gradually improving profits, it can further push up the starch corn price difference.
4. Correlation analysis between raw material and starch prices
The price difference between starch and corn is an arbitrage strategy that the market pays close attention to, with a normal fluctuation range between 300-500 and a very high overall correlation. But in recent years, with the changes in the industry, the relationship between the two has also undergone some changes. We tested the correlation analysis between starch and corn prices in three stages: from August 2016 to December 2021, from January 2022 to December 2023, and from January 2024 to the present. The conclusion is as follows: corn and starch usually have a high degree of fit, but there was a certain degree of splitting during the period of 2022-23, and they returned to a high fit market in 2024.
From 2022 to 2023, as the price of soybean meal and protein surged to historical highs, the prices of starch by-products (protein powder, germ meal, etc.) also increased significantly, which to some extent increased the profits of starch processing and suppressed the profits of starch itself. In addition, due to poor demand reception, starch prices continued to decline. The one-way balance of profits between starch and corn has been disrupted, and the intervention of protein fluctuations has led to a significant decline in the correlation between starch and corn. But in 2024, as the price of meal protein returns to weakness, the substitution effect of corn protein rapidly weakens, and its contribution to starch profits returns to mediocrity, the price difference between starch and corn returns to high correlation.
Overall, in the process of relatively stable corn prices, the starch corn price difference basically follows the trend of corn prices. However, when protein prices are high and corn prices rise too quickly, the price difference often tends to weaken, which also reflects to some extent the time required for the cost to be transferred downstream and the interaction between different profit growth points.
5. Outlook for future market trends
From the perspective of raw material supply, 1. Due to weather conditions, the yield of new products has slightly decreased, coupled with a reduction in planting area, the overall yield is expected to decline by 3% year-on-year, still belonging to a high yield year; 2. The deviation in grain quality combined with the lack of confidence in the future corn prices at the grassroots level may lead to a faster pace of grain sales before the new year, or reduce the pressure of selling grain in the future; 3. The substitution of imported grains, wheat, and rice has significantly declined within the year, with a year-on-year decrease of nearly 40 million tons. Coupled with an increase in the storage capacity of China Grain Reserves Corporation and low inventory levels among traders, there may be a possibility of tight supply in the future.
From the demand side, the expected profit of live pigs in 12025 is not good, with high inventory levels, which guarantees feed consumption but does not guarantee industry profits, and the boost in corn prices is not strong; 2. Due to good profits in 2024 and high inventory compared to the same period last year, deep processing will be carried over to 2025. At the same time, the increment of deep processing is limited, and corn consumption is relatively stable; 3. The reserve inventory will continue to increase in 2024, providing a bottom line for corn prices. However, purchasing according to market conditions will lack a boost to prices. If the rebound in spot prices accelerates in 2025, the reserve regulation ability may be strengthened. Corn supply is expected to tighten, and both substitution and imports will significantly weaken. Coupled with reduced production, the market is supported, and demand is relatively stable. In 2025, we will focus on supply change nodes.
The current decline in soybean meal prices is widening, with little contribution from protein profits and support from starch prices. However, with the decline in raw material prices, starch currently has high profits, and production and finished product inventories continue to maintain a relatively high position during the same period. It is also difficult for the starch corn price difference to strengthen, and the decline in raw material prices will simultaneously suppress the operation of the Yudian price difference. Pay attention to the performance of starch inventory reduction in the future. With the unilateral strengthening of corn, the price difference between 05 starch and corn may be driven by long positions in the range of 250-300.
