Supply and demand tend to be loose, and corn prices are running at a low and weak level in the short term

1、 Summary

Since August, due to the intensive auctions of China Grain Reserves Corporation and loose market supply and demand, the spot price of corn futures has remained weak. On the one hand, Chen Liang still has some inventory, and under the pressure of repayment from third-party funds, some trading entities are gradually shipping, while new grain and water soaked grain are being harvested and listed, with obvious price advantages. From the perspective of midstream and downstream, deep processing and feed enterprises have a clear wait-and-see attitude, digesting their own inventory. Overall, the market supply and demand are becoming more relaxed. Futures and spot prices may be significantly dragged down. In the medium to long term, firstly, there has been a significant release of negative factors recently. Secondly, the operating rate of deep processing enterprises has continued to increase year-on-year. Thirdly, the inventory of sows capable of breeding has continued to increase. Fourthly, the import end may be restricted, and the market may usher in some favorable conditions. It is expected that the short-term market may remain weak, but there is a demand for stabilization in the medium to long term.

2、 Fundamental analysis

（1） Port grain inventory remains relatively high year-on-year

According to Mysteel data, as of September 13th, the corn inventory in the four northern ports was 1.361 million tons, an increase of 27000 tons or 2% compared to the previous week, and a year-on-year increase of 375000 tons or 38%. The domestic corn inventory in Guangdong Port was 262000 tons, an increase of 6000 tons or 2% compared to the previous week, and a year-on-year increase of 113000 tons or more, with a growth rate of over 76%. Foreign trade corn inventory was 81000 tons, a decrease of 70000 tons or 46% compared to the previous week, and a year-on-year decrease of 318000 tons or 80%. At the same time, the grain inventory in Guangdong Port was 1.667 million tons, with a weekly increase of 14000 tons or a decrease of 1%, and a year-on-year decrease of 26000 tons or 2%. The inventory of domestic corn channels continues to decrease, and the supply pressure has been reduced. The inventory of corn in Beigang and the inventory of foreign trade corn in Guangdong Port have approached a low level, especially the inventory pressure of foreign trade corn and other grains has significantly decreased. At present, the market is focused on the launch of new grains, and the supply pressure is gradually increasing. However, the quality of new grain has decreased, prices continue to be weak, and coupled with the high year-on-year inventory of old grain, due to financial and loss pressures, the high selling sentiment of grain holders will drag down futures prices. In addition, after late August, the central reserve grain corn rotation sales and release quantity increased significantly. Coupled with the bi-directional rotation of purchase and sales, the market expects the weekly release quantity to be close to 1 million tons, and in the first week of September, it exceeded 1 million tons. Coupled with the weekly release of imported reserve corn exceeding 300000 tons, the market supply pressure remains high, and prices will continue to be under pressure.

（2） Profit turned positive, and the operating rate of deep processing slightly rebounded

On the product side, the enterprise's starch inventory was 873000 tons, with a decrease of 0.1 million tons in the weekly ratio, an increase of 128000 tons year-on-year, and a growth rate of 17.2%. Although the speed of destocking has accelerated recently, the year-on-year inventory of products is at a high level in recent years, coupled with the weak price of raw material corn and the weak trend of starch prices. However, under the guidance of weak corn, starch processing profits have turned positive, and the operating rate has slightly rebounded for three consecutive weeks. As of September 20th, the operating rate of corn starch was 56.43%, an increase of 0.08% on a weekly basis and a year-on-year increase of 2.57%, which has a certain boosting effect on the price of raw material corn. The enterprise's corn inventory was 2.616 million tons, down to the same period last year. In the future, the start-up rate of deep processing enterprises may enter a seasonal recovery cycle, which will to some extent boost the demand for corn, and there is room for the recovery of corn inventory in enterprises.

（3） The inventory of sows capable of breeding is gradually increasing, and there may be a rebound in feed demand

The consumption boost during the Mid-Autumn Festival holiday is limited. The second round of pig production has increased since the second quarter. According to the breeding cycle, the pig production capacity or sustainable production in the fourth quarter, the market supply is abundant, and the price of superimposed substitutes such as beef and mutton is low. The enthusiasm of pork consumption is lower than that in previous years. Recently, the pig price has declined continuously, and the profit has shrunk, but it is still in the profit range. The profit of outsourcing piglet breeding is 405 yuan/head, and the profit of self breeding and self breeding is increased to 649 yuan/head. According to data from the Ministry of Agriculture and Rural Affairs, the inventory of sows capable of breeding at the end of July 2024 was 40.41 million, a decrease of 2.3 million from the same period last year, a year-on-year decrease of 5.4%, and a continuous decline for 13 months; But it has been rising month on month for three consecutive months, with a cumulative increase of 550000 heads, and the highest in nearly five months. Data from the Ministry of Agriculture and Rural Affairs shows that the number of breeding sows has increased for three consecutive months compared to the previous month, while data from Steel Union shows that the inventory of breeding sows has increased for six consecutive months compared to the previous month. In the later stage, with the boost of profits, the inventory of live pigs is expected to stop declining and rebound, which will also boost the demand for feed in the fourth quarter.

（4） Corn imports decrease

Recently, the pressure of substitution has decreased. On the one hand, corn imports continue to decline, with China's corn imports in August reaching 430000 tons, a sharp decrease of 63.9% year-on-year. The import volume of corn from January to August was 12.56 million tons, a year-on-year decrease of 15.7%. On the other hand, there are rumors in the market that other grain imports will also be restricted. As of August this year, the cumulative imports of grains including corn, sorghum, barley, and wheat amounted to 59.25 million tons, compared to 41.75 million tons in the same period last year. Under the pressure of substitution, corn prices continue to fall. Market rumors suggest that imports of grains such as sorghum and barley may be restricted in the fourth quarter, with the previous year as the benchmark and corresponding varieties not exceeding the total import volume of the previous year. In the previous issue, we mentioned that apart from corn, only barley and wheat had a gap of 1.61 million tons and 720000 tons in total imports from January to July compared to last year. In August, the imports of these two grains were 1.15 million tons and 1.95 million tons respectively, basically meeting the requirements for restrictions. This means that from September onwards, the imports of sorghum, barley, and wheat are likely to be very limited, which will greatly help alleviate the pressure on corn.

（5） Strong expectations for reduced domestic corn production in the new season, but approaching concentrated increase in quantity

For the new quarter, the market's sensitivity to production cuts has decreased. Firstly, the market has different opinions on the reduction of corn production in the new season. Secondly, under the background of weak market and sustained losses, the market mentality is weak, and the impression of production reduction is gradually decreasing. In addition, market research shows that the production situation in some regions is better than expected, which also reduces the magnitude or expectation of production reduction. In terms of open scale prices, the quality of corn in early maturing areas has been affected by factors such as water soaked grains. This year's open scale prices are generally low, which has had a negative impact on the market. According to market news, the current net grain purchase price for new grain in the main production areas is between 0.98-1 yuan/jin; The purchase price of corn cob remains around 0.45-0.53 yuan/jin. In the future, new grains will be concentrated on the market, while there is still a demand for old grains to be released. Coupled with the continuous policy investment, the market mentality continues to be weak. It is expected that the rebound of corn lacks momentum.

（6） Weak spot and futures prices

The closing price of Jinzhou Port produced in Northeast China (National Standard Second Class, Water Content 14.5%, 700g/L) has decreased from 2290 to 2260, the market price of Weifang Port produced in East China (National Standard Second Class, Water Content 14.5%, 700g/L) has slightly increased from 2280 to 2180, and the market price of Shekou Port produced in Northeast China (National Standard Second Class, Water Content 14.5%, 700g/L) has dropped from 2350 to 2320. Although the Chen grain market has basically bottomed out, due to financial pressure, grain holders have a high enthusiasm for selling grain, and prices continue to be weak. Nangang follows suit and operates accordingly.

3、 Summary and Prospect

On the demand side, due to seasonal inventory reductions, the inventory levels of deep processing enterprises continue to decline. The profitability of aquaculture has slightly declined, and the number of new corn listing areas is gradually increasing. The current market mentality is weak, and feed companies are cautious in their procurement mentality. It is expected that there is still room for price reduction, and the enthusiasm for replenishing inventory is low. Corn inventory of feed companies has once again slightly declined. Overall, there has been an increase in supply, while demand has slightly declined. On the supply side, there is still surplus of Chen corn, while new corn is gradually being launched, and there will be pressure for centralized listing in the future. Due to the current weak corn market prices, the market has a clear mentality of selling off aged corn, coupled with the fact that most of the newly listed corn is water soaked grain with poor quality, resulting in a weakening of prices. Overall, the sales mentality and poor quality have led to a cycle of weak prices. However, in the future, firstly, the current price has dropped significantly due to market sentiment and quality issues, approaching the planting cost line, and there may be limited room for further decline. Instead, there is a growing trend in consumption in the fourth quarter, including the recovery of pig breeding sow inventory and the end of the seasonal inventory reduction cycle in deep processing. Thirdly, the current inventory is low, and there is a demand for replenishment in the future. But under the pressure of centralized listing, the upper space is also limited. It is expected that the market will mainly experience low-level weak fluctuations in the future. It is not recommended to chase short positions and wait for market fluctuations to stabilize. Continued attention is needed in the future, firstly to clarify the extent of production reduction, and secondly to understand the purchasing mentality of intermediate channel partners.