The fundamental changes are limited after the policy of increasing storage, and the corn market may cool down near the Spring Festival

abstract

Due to the expansion of storage by China National Grain Reserves Corporation and the decrease in volume near the Spring Festival, corn futures rose across the board last week. Among them, the main 2505 contract reached a peak of 2298, with a weekly increase of 1.82%, while the far month main 2509 contract reached a peak of 2340, with a weekly increase of 1.70%. The 2501 contract expires and the exchange lists 2601, mainly operating between 2250-2280. In terms of term structure, the near and far contracts maintain a contango structure, which means that the market is bullish in the long term, but there has been significant supply and demand pressure in the near future and the futures premium is too high. At the price level, driven by the favorable trend of increasing reserves and market sentiment, spot prices have followed the rise of futures prices. The closing price of Jinzhou Port in Northeast China has decreased from 2050 to 2110, while in East China it has decreased from 2060 to 2090. The price of second-class corn in Nangang and Northeast China has also decreased from 2180 to 2250. Among them, the increase in ports in the north and south reached 60-70%, and the increase in Shandong region was about 30%. At the price difference level, the current corn price difference between ports in East China and Northeast China has decreased from 10 to -20, and the inverted range has further deepened, making it difficult for Northeast China to flow out to East China; The corn price difference between southern ports and northeastern ports increased from 130 to 140 at the beginning of the month, and remained stable. The price difference is approaching the edge of inversion, which may hinder later shipments.

（1） More than half of the country's grain sales are approaching, but as the Spring Festival approaches, purchasing and sales tend to be flat

According to Mysteel data, as of January 17th, the national grain sales were 53%, an increase of 9% year-on-year. Looking at different regions, the progress of grain sales by grassroots farmers in Northeast China is about 49%, which is 10 percentage points faster than the same period last year. The progress of corn sales in North China is about 51%, which is 9 percentage points faster than last year. Overall, since the beginning of this year, more than half of the country's grain sales have occurred, and the progress has continued to be relatively fast. There are only about 10 days left until the Spring Festival, and the stocking is basically completed. Various regions are gradually taking a break, and market purchases and sales are becoming flat. It is expected that market enthusiasm may dissipate.

（2） Northern port inventory remains high year-on-year

In the second week, the arrival volume at Beigang was 806000 tons, compared to 706000 tons last week and 318000 tons in the same period last year. A massive amount of 615000 tons were shipped, compared to 643000 tons last week and 244000 tons in the same period last year. Due to the recent continuous rise in spot corn prices, the quantity of shipments from production areas to ports has increased, which is higher than the same period last year and still relatively high compared to the same period last year. At the same time, the ports in the north and south have adjusted their prices, and shipments are basically not losing money. However, stocking has basically ended, and the weekly sales ratio for the next batch has decreased, but it still maintains an absolute high year-on-year. In the 52nd week, the corn inventory in the four northern ports was 4.618 million tons, up from 4.427 million tons last week, showing an increase on a month on month basis and a year-on-year increase of 3.24 million tons, with a growth rate of 236%. The year-on-year level remained high with only slight fluctuations.

Subsequently, the pre year stocking has basically ended, and the port shipping volume may decrease compared to the previous year. Around the Spring Festival, the main focus may be on digesting port inventory, and there may be a decrease in port inventory in the next two weeks.

（3） Profit reduction in deep processing, product inventory maintains high year-on-year levels

As of the third week, corn starch inventory was 905500 tons, up from 899000 tons last week and 671500 tons in the same period last year, an increase of 234000 tons or 35% year-on-year. Downstream centralized pick-up before the Spring Festival, with good delivery from enterprises in North China; Northeast enterprises have reduced their shipments to the south, mainly for short distances, with a slight increase in inventory. There are slight differences in inventory performance across regions, and overall industry inventory has slightly increased. Year on year, it is at its peak level in recent years, and product inventory pressure still exists. As of January 17th, Jilin corn deep processing enterprises incurred a loss of 7 yuan/ton, while the profit in Shandong region decreased to 51 yuan/ton. Due to the recent stable and moderate increase in raw material corn prices, while starch prices in Jilin region have remained stable and slightly decreased, and the limited follow-up increase in starch prices in Shandong has led to a slight reduction in profits for deep processing enterprises.

Subsequently, on the one hand, profitability has decreased, and on the other hand, product inventory remains high, coupled with delays during the gap period before and after the Spring Festival holiday, which is not conducive to the release of demand for raw material corn.

As of January 3rd, the operating rate of corn starch was 67.39%, an increase of 0.37% compared to the previous week, a decrease of 5.47% year-on-year. The operating rate of alcohol enterprises was 61.54%, a decrease of 9.35% year-on-year. As of January 15, 2025, the total corn inventory of 96 major corn processing enterprises in 12 regions of China was 6.251 million tons, an increase of 5.11%, significantly higher than the same period last year and the five-year average level. Overall, the corn inventory of domestic deep processing enterprises has significantly increased, and the inventory levels in various regions have generally increased. However, with the arrival of 2025, the seasonal rebound cycle of the operating rate in the deep processing industry will come to an end, and there have been signs of a significant year-on-year decrease in the operating rate in the past two weeks. In the context of a decrease in operating rate, the demand for raw corn will have limited growth or may decrease in the future.

（4） Breeding profits continue to compress, while the ability to breed sows continues to increase

After New Year's Day, pig prices continued to fluctuate weakly, but with the approach of the Spring Festival, the market's favorable conditions remained relatively strong, and there were signs of stabilization and rebound in pig prices last weekend. Looking ahead, with the support of the Spring Festival, pig prices may temporarily stabilize. Due to the increase in raw material prices and the decrease in product prices, the profits of pig farming continue to shrink. As of January 17th, the profit from purchasing piglets for breeding has decreased from 149.01 yuan/head to 121.54 yuan/head, and the profit from self breeding has decreased from 311.15 yuan/head to 281.57 yuan/head, still within the profit range. Although aquaculture continues to generate profits, the profit range has been significantly compressed, and there may be an adjustment range for the production capacity of aquaculture enterprises in the future.

The number of new piglets born nationwide in December increased by 1.3% (or 1.6%) compared to the previous month. From this perspective, the pressure will be relatively high until July next year. At the end of November 2024, the national inventory of breeding sows was 40.8 million, an increase of 0.2%, which was the highest inventory in nearly 11 months; Compared to the same period last year, there was a decrease of 1.3 million heads, a year-on-year decrease of 1.9%, and a continuous decline for 17 months. As of the end of December 2024, Zhuochuang Information monitored that the inventory of sows capable of breeding in 196 sample enterprises was 8.8987 million, a year-on-year increase of 15.35%. Mainly due to the sufficient confidence of the breeding end within the year, actively expanding production capacity. Since April, the inventory of sows capable of breeding has basically maintained an increasing state. According to a 10 month slaughter cycle, it means that by July of this year, the inventory has steadily increased, and the probability of increased pressure on pig supply is still relatively high.

（5） The domestic corn inventory in Nangang continues to rise, limiting the space for enterprises to replenish inventory

As of January 17th, the inventory of corn raw materials in feed enterprises was 33.39 days, up from 32.3 days last week and 30.55 days in the same period last year, an increase of 2.84 days year-on-year. Due to the improvement of market sentiment, coupled with factors such as increasing storage to boost replenishment and stocking up before the Spring Festival, feed companies are actively replenishing their inventory. Currently, the company's inventory has increased significantly year-on-year and is not significantly different from the same period in 2022. With the arrival of the Spring Festival holiday, it is expected that both supply and demand may experience seasonal reductions. As of January 10th, the domestic corn inventory in Guangdong Port has reached an absolute high of 1.795 million tons, and continues to increase. It increased by 132000 tons on a weekly basis and 1.659 million tons year-on-year. Foreign trade corn inventory remains consistently low, but grain inventory has recently increased due to an increase in domestic trade corn inventory. As of January 10th, grain inventory was 3.232 million tons, an increase of 1.433 million tons year-on-year. Since the launch of corn on the market, the inventory days and domestic corn inventory in Nangang have continued to rise. In the future, on the one hand, the price difference between the North and South ports has narrowed, and shipping profits have reduced or restricted the subsequent development of energy. On the other hand, as the Spring Festival approaches, the demand for stocking by enterprises has weakened, and with sufficient stocking after the holiday, the space for demand to be released again may be limited. At the same time, the policy and sentiment of replenishing inventory before the holiday have been boosted. Currently, the sentiment is mostly released, and the purchasing momentum of feed enterprises has significantly weakened in the future.

（6） US corn prices rise, import costs continue to rise

In 2020-21, temporary storage and destocking were completed, and grain imports began to increase. The cumulative import of corn and corn substitutes reached about 55.56 million tons, setting a new annual high. In 2023-24, the cumulative imports were 50.55 million tons, compared to 38.25 million tons in the same period last year, an increase of 32.15% year-on-year. The significant increase in grain imports has driven the continuous decline of domestic corn. In order to alleviate the pressure of domestic oversupply, boost corn prices, and protect farmers' income, there are rumors in the market that relevant government departments have held talks with several domestic grain import enterprises in Beijing, suggesting to stop purchasing barley and sorghum from abroad and control the quantity of grain imports. This means that in the context of restrictive import policies and weak corn prices, grain substitution or quantity reduction is the main approach. According to the shipping schedule calculation, the import quantity of wheat, sorghum, barley, and corn in the fourth quarter of 2024 may be around 5-6 million tons, while the same period last year, including feed rice, barley, sorghum, barley, and corn, was around 26 million tons.

（7） Futures premium and warehouse receipt high, limited upward space

As of January 17th, futures have risen by 181, compared to last week's rise of 200 and the same period last year's discount of 13, which is at an absolute high in recent years and is very conducive to selling guarantees and spot arbitrage in the spot market. Warehouse receipts are at a high level in recent years, and the pressure of industrial hedging still exists. As of January 17, 2025, there were 112093 registered warehouse receipts for corn futures on the exchange, with no change compared to the previous period. From a seasonal perspective, the registered warehouse receipts for corn are at a historically high level. In the future, although the sales progress is relatively fast to alleviate the post holiday supply pressure, the period before and after the Spring Festival is still a seasonal sales peak, and the significant increase in futures is conducive to industrial sales protection. There is still room for warehouse receipts to increase, so it is expected that the market pressure will remain, and the upward space of futures will be limited until the spot pressure gradually clears.

Logical sorting and future prospects

Against the backdrop of China National Grain Reserves Corporation expanding its storage capacity and faster grain sales progress, market sentiment has improved, with downstream enterprises actively replenishing their inventory. Spot prices have generally risen, and futures volume warehouse double increase prices have also continued to rise. However, there are still certain obstacles to the pre holiday increase. One is the seasonal high level of port inventory. Secondly, the pre holiday stocking has come to an end, and the corn inventory of deep processing enterprises and feed enterprises is relatively high compared to the same period last year. Around the Spring Festival, the main focus may be on digesting inventory. Thirdly, with the rise in corn prices, profits in the deep processing and feed industries have shrunk, resulting in a year-on-year decrease in the start-up rate of deep processing in the new year, which will limit the demand space for raw materials. The fourth issue is that the futures premium is too high, and a significant increase in futures premium attracts industry sellers or futures arbitrageurs to enter the market, and further increases the pressure of warehouse receipts on the market. Therefore, if the market rises, it is necessary to release the pressure of warehouse receipts in advance. Fifthly, with the fermentation of market sentiment and the demand for profit taking and exit in the upcoming Spring Festival, the market may experience a cooling trend before and after the holiday. In the short term, there is a pullback demand for corn. It is recommended to take a long profit position in the early stage, and investors can control their positions to prevent sudden or uncertain events at home and abroad in the near future. In the medium to long term, we can adopt a strategy of rebounding excessively, and the bottom support can refer to various costs. For reference only.