Corn continues to move downwards, with limited space

From the seasonal characteristics of corn prices, wheat prices, trader mentality, and macro factors, it can be seen that corn prices will remain low and fluctuate in the fourth quarter, with limited room for further decline.

Since the end of September, corn futures prices have rebounded and stopped falling. The price of corn futures contract 2501 has rapidly increased from 2150 yuan/ton to 2247 yuan/ton, rising nearly 100 points in just a few days. We assess that the main reason for the rapid rebound in corn prices in this round is due to macro level factors. On September 24th, Pan Gongsheng, Governor of the People's Bank of China, Li Yunze, Director of the State Administration for Financial Regulation, and Wu Qing, Chairman of the China Securities Regulatory Commission, attended a press conference held by the State Council Information Office to introduce the relevant situation of financial support for high-quality economic development. At the meeting, multiple heavyweight financial policies were announced, including a 0.5 percentage point reduction in reserve requirement ratio, a 20 basis point interest rate cut, the establishment of stock buybacks, increased holdings of refinancing loans, a reduction in existing housing loan interest rates, and a unified minimum down payment ratio for housing loans. After the policy was released, the market reaction was very positive, and both the domestic stock market and commodity market saw significant increases on that day. We believe that the short-term corn market will be greatly affected by macro factors, so we recommend investors to appropriately reduce their open positions and control risks within a reasonable range.

New season corn is being launched one after another

Corn belongs to the category of seasonal production and annual sales, and its price fluctuations show obvious seasonal characteristics. Generally speaking, corn prices are relatively low in the fourth quarter of each year, and relatively high in the second and third quarters of each year. Since late September, the new season corn in North China and Northeast China has been launched one after another, and farmers have not shown reluctance to sell in the face of current corn prices. As of October 6th, the weekly collection volume of corn at Jinzhou Port is about 120000 tons, which is at a high level in recent years; The remaining number of vehicles arriving in front of the Shandong deep processing plant is about 606 per day, which is also at a high level in the same period of recent years. The above data can indirectly indicate that there is currently no reluctance to sell among farmers.

We believe that based on seasonal considerations, the supply of corn may gradually increase. If traders and end grain enterprises continue to purchase without building inventory according to a neutral strategy, corn prices may continue to be under pressure in the future. So, has the mentality of traders and terminal grain enterprises improved? We believe that as of the week ending September 30th, there has been an improvement in the mindset of traders.

According to the spot and futures prices of corn at Jinzhou Port on September 30th, the basis of the corn 2501 contract is approximately -107 yuan/ton, which is at a historical low for the same period. It should be noted that in mid September, the spot price of corn was still higher than the corn futures price, with a basis of about 10 yuan/ton for the corn 2501 contract. Due to changes in the corn base, we assess that there has been a significant improvement in the buying and selling mentality of traders at the end of September. We believe that after the holiday, more large and medium-sized traders will sell hedging through futures and actively purchase spot goods, thereby driving the improvement of the corn spot market.

The feeding value of wheat is not significant

Since the launch of the new season wheat in late May, the price of domestically produced wheat has continued to fluctuate within the range of 2450-2520 yuan/ton. We analyze the trend of corn prices and believe that wheat is still one of the factors that cannot be ignored. In the medium to long term, we believe that corn prices will fluctuate around wheat prices. Therefore, the trend of wheat prices largely determines the future trend of corn prices. In order to stabilize the wheat market expectations and safeguard the interests of grain farmers, China has fully utilized the role of reserve grain in regulating the collection and storage of grain. This year, for the first time, the purchase of new season wheat reserves has been launched in major wheat producing areas. As of September 30th, China Grain Reserves Corporation has launched a total of 436 additional storage and purchase points in major wheat producing areas, further stabilizing wheat market prices and safeguarding the interests of grain farmers. By region, there are 68 branches in Beijing, 147 branches in Henan, 52 branches in Shandong, 58 branches in Jiangsu, 67 branches in Anhui, 16 branches in Hubei, 2 branches in Shanghai, 6 branches in Xi'an, and 20 branches in Xinjiang.

Based on wheat production and demand as well as policy factors, we estimate that wheat prices will fluctuate around 2500 yuan/ton in the coming period. Roughly estimated based on its feeding value, it is equivalent to a corn price of 2430 yuan/ton. According to statistics from reference institutions, the current price of corn in North China is about 2200 yuan/ton, and the price of wheat in North China is about 2480 yuan/ton. Overall, it can be concluded that short-term wheat prices in North China have no feeding value, but medium - to long-term corn prices will also be suppressed by wheat prices.

Conclusion

Taking into account the seasonal characteristics of corn prices, wheat prices, trader mentality, and macro factors, we believe that corn prices will remain low and fluctuate in the fourth quarter, with limited room for further decline. Based on policy factors and odds considerations, we tend to focus on buying long on dips. Of course, based on the current corn basis, we prioritize recommending the buy corn basis strategy.