Corn and starch: Strong spot prices drive fluctuations in futures and prices, with a tendency towards stronger operation

Domestic corn spot prices have continued to rise since the weekend, with strong fluctuations in market futures prices and slight gains in various contracts. For corn, considering that the progress of grain sales before the Spring Festival has already exceeded half, the market gradually realizes that there is a production and demand gap in domestic corn this year. The market is expected to gradually shift from passive destocking to active replenishment, and the medium to long term upward trend may have been established. After the Spring Festival, the inventory in the middle and lower reaches, including channels (ports in the north and south) and terminals (deep processing and feed enterprises), will decrease and need to be replenished. In addition, China Grain Reserves Corporation announced the increase of storage points after the Spring Festival, which should be able to alleviate the pressure of surplus grain for farmers after the holiday, and spot prices are expected to continue to rise. The main factor that is currently unfavorable for the rise in futures prices is the high rise in water prices, which requires continuous positive feedback from spot prices to repair the basis. In this situation, special attention should be paid to the volume of deep processing vehicles and northern port consolidation, as they affect the performance of spot prices. In summary, we maintain a cautious bullish view and recommend investors to hold long positions in the early stages.

Starch spot prices are stable with some gains, with prices in some areas increasing by 20-60 yuan. Starch futures prices are relatively stronger than corn, and the price difference between starch and corn has slightly widened. For starch, the recent low volatility of the starch corn price difference is mainly due to the continuous accumulation of industry inventory on the supply and demand side during the Spring Festival period. Considering the sustained low level of by-products and the relatively higher starch basis difference compared to corn, coupled with severe production losses on the market, these factors limit the space for the starch corn price difference to continue to narrow. However, the corn raw material side may have already established an upward trend, and the starch corn price difference is expected to turn towards expansion. Overall, we hold a cautious bullish view and recommend holding early long positions or starch corn price arbitrage portfolios.