New Delhi — Corn futures on the Chicago Board of Trade have climbed more than 20% in the last three months amid stronger exports and shrinking domestic supply estimates, but analysts said US corn's dependency on China's imports and demand from ethanol industries is keeping prices vulnerable.
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The most active December corn futures contract touched a 17-month high of $4.28/bushel following the November World Agricultural Supply and Demand Estimates report on Nov. 10, which showed shrinking stocks and rising exports. Prices later slipped marginally from that high and were trading around $4.20/bu on Nov. 17.
Meanwhile, the US Department of Agriculture's season average farm price for US corn has increased 30% since August to $4/bu in November owing to the substantial shift in supply and demand fundamentals for US corn.
US corn production estimates for 2020-21 (September-August) have fallen by 9.3% in the past six months to 14.5 billion bushels (368.49 million mt), and the year-end stocks have almost halved to a seven-year low of 1.7 billion bushels (43.23 million mt).
Additionally, price support was also seen from shrinking global stocks and rising export demand.
Global corn production for 2020-21 has dropped by 3.4% since May to 1.145 billion mt in November, while global stocks were down 14% at 291.43 million mt, according to the USDA. Meanwhile, export estimates for US corn were seen at 59 million mt, up 8% from May.
Focus on China
According to analysts, though the supply of corn has been a factor, export demand is the key market driver for US corn.
Total corn commitments for US corn in the marketing year 2020-21 stand at 34.168 million mt, 173% higher on the year, according to S&P Global Platts Analytics. A majority of these exports are destined to China.
China's corn import estimates for the 2020-21 marketing year were lifted to 13 million mt in November's WASDE report from 7 million mt previously.
Meanwhile, China's tariff rate quota on corn imports still stands at 7 million mt. Over that quota, corn imports into China attract a 65% import duty.
According to analysts, the market has priced in expectations that China will increase its import quota to 20 million mt, but so far China has made no attempt to suggest that despite higher buying.
USDA's current estimates at 13 million mt leave domestic corn supplies ample and lacking justification for prices above $4/bu, analysts said.
US corn prices are likely to react to China's corn buying decisions as markets expect the US to fulfill the major share of China's increasing appetite for corn.
A change in administration in the US also did not elicit any major concerns over the US-China Phase 1 deal as the market expects China to continue buying what it needs to meet its current deficits, while major changes in policies are not anticipated due to the split in Congress, analysts said.
Ethanol and corn demand
Although COVID-19 remains a demand concern for US corn as a second wave of the pandemic may mean further lockdowns and drop in demand from ethanol industries, news of successful vaccines are shielding prices as of now.
Corn is susceptible to any potential coronavirus-related shutdowns, as that will reduce demand for ethanol, and nearly 40% of corn produced in the US goes into ethanol production.
Analysts expect a steady growth in demand for corn used for ethanol, and numbers also suggest the same.
According to the US Energy Information Administration, weekly ethanol production rose to 977,000 b/d in the week to Nov. 6, the highest since the week ended March 20, after which coronavirus-related lockdowns weighed on ethanol production numbers.
Terry Reilly from Futures International said he expects corn used for ethanol to rise to 5.075 billion bushels in 2021-22, and Arlan Suderman, Chief Commodities economist with StoneX, expects it to be at 5.450 billion bushels, "if" the US is able to move through and past the COVID-19 risk.
For ethanol, in the near term, markets will be watching Thanksgiving holiday gasoline demand numbers as a possible sign of things to come in late December-early January, Platts Analytics said.
In the longer term, the Biden-Harris administration is expected to move the US toward renewable energy at a faster pace, including electric vehicles, which would mean less gasoline consumption, and therefore less ethanol blended in gasoline, market sources said.