Northeast Asia corn import prices rise on China demand, weak US corn crop outlook

Singapore — CFR corn prices into Northeast Asia are seen rebounding to pre-coronavirus pandemic levels, as strong demand from China emerged in the midst of growing uncertainty for the new corn crop in the US.

CFR Northeast Asia corn prices fell to a year-to-date low of $172.50/mt on April 29. Since then, they have been on an uptrend to reach $216.5/mt on Sept. 9, a level last seen in January 2020, just before the pandemic. The rise in prices is supported by higher demand from China, firmness in futures market, as well as strong FOB cash premiums in the world's second-largest seller of corn, Brazil.

While the most active corn futures contract on the Chicago Board of Trade gained over 40 cents over the last one month to $3.65/bushel on Sept.10, the basis for FOB Santos corn also gained strength.

Platts assessed the FOB Santos basis at 117 cents/bu to CBOT December (Z) futures on Sept. 10, when at this time a year ago, the basis was at 29 cents/bu.

For the US, concerns of a drop in yield for corn from dry weather and damage from a recent derecho, along with higher buying from China have pushed up corn prices on the CBOT.

The US Department of Agriculture's World Agricultural Supply and Demand Estimates report is due to be released on Sept. 11 and with recent poor weather conditions, most analysts are expecting yields and production estimates to fall for the 2020-21 marketing year (September-August).

For the report, analysts are expecting yield for US corn to be at 178.3 bushels/acre, which can result in a 380 million bushels reduction in the nation's corn production in the 2020-21 marketing year.

S&P Global Platts Analytics expects US corn yield estimates to be at 178.8 bushels/acre, compared to USDA's estimates of 181.8 bu/acre.

Production of corn in the US is estimated at 14.858 billion bushels by Platts Analytics, and at 15.278 billion bushels by USDA.

Meanwhile, corn prices in Brazil are likely to be elevated due to strong local demand and favorable currency exchange.

STRONG CHINA DEMAND

China has been making headlines with flash purchases of US corn and has emerged as a prominent buyer of the commodity.

US corn shipments to China in June 2020 surpassed the total volume of US corn exported to the Asian nation during the entire 2018-19 marketing season (September-August), indicating China continues to show intentions to fulfill its commitments under the multi-billion dollar Phase 1 trade deal.

Market sources estimated that China has bought 9 million mt of corn just from the US for the marketing years 2019-2020 and 2020—2021 combined, and is likely to continue with the purchases. Trading sources are expecting total volumes to hit between 20 million-30 million mt.

"Most market players have priced in China buying of 20 million mt," one Japan-based source said.

According to reports, China might be aiming to build reserves for certain commodities in the face of trade disputes, and a pandemic.

As of yet, China imported highest amount of corn from the US in 2011-12 marketing year at 5.15 million mt, according to the data from USDA's Global Agricultural Trade System.

Demand from other major northeast Asian corn buyers -- Vietnam and South Korea -- was steady until mid-year, but as prices started to climb, buyers started backing off. Most buyers have positions left open for December and January but are reluctant to book new cargoes.

CORN CROP DAMAGE

According to a Singapore-based trader, the high imports are linked to China's domestic crop production.

Damage to corn crops in Northeast China due to recent typhoons in the country is also raising anticipations of additional demand for corn imports.

"10%-15% crop damage, this translates to minimum 10 million mt", the trader said.

Two typhoons in the last 10 days devastated corn crops in northeastern China — the largest corn growing region in the country, a Beijing-based analytical company Cofeed said Sept. 8.

The typhoons have caused damages to corn crop in Heilongjiang and Jilin provinces in China. "Corn crops were battered here and there hit by the wind as their plants were higher and heavier," the company said.

Grain base in the three provinces of northeastern China -- Liaoning, Jilin and Heilongjiang -- are of great significance to grain security in China as these crops account for three quarters of the whole-year grains, the company said.