Chinese buyers are remaining cautious about booking fresh deliveries of corn in the new crop year other than to maintain a safe level of stocks, amid a haze of uncertainty over the direction of domestic agricultural policy. Slumping Dalian futures prices on top of opaque government efforts to liberalise the market are driving end-users’ newly conservative approach, according to China’s National Grain and Oil Information Center (CNGOIC).
Spreads between US and Chinese government supported corn prices became increasingly extreme since the two drifted apart from near parity back in early 2013. But since June, Dalian futures prices have demonstrated a belated response to US corn’s much earlier slide, with Chinese futures down 16% since the start of June in delayed response to the similarly sized drop in the US futures market from January peak to June trough. The slump in the Renminbi’s buying power relative to the US dollar has exacerbated the trend in dollar terms (see chart), with any decision to raise US rates a sure fire spur to a stronger dollar. Chinese hog production meanwhile still has a mountain to climb to make up for the 30 months of breeding decline seen into the first quarter of this year, with first half national Chinese feed production down 1.7% at 87.3%. And ethanol producers are continuing to struggle against much cheaper Brazilian and US exporters, with a sharp upswing in imports of denatured fuel ethanol into China relative to 2014 leaching market share away from China’s heavily corn-oriented fleet of domestic ethanol plants.
Chinese end-users and international exporters alike meanwhile are busy trying to understand the immediate implications of professed government ambitions to increase the responsiveness of Chinese corn prices to disaggregated market forces. On 10 July the ministry of agriculture’s website published a statement of intent to adjust the supply and demand of corn through market prices, according to CNGOIC. The announcement was followed less than three weeks later by the National Development and Reform Commission’s announcement that it intends to “promote the marketization of purchase and sales, straighten out the price formation mechanism and give a reasonable guide to the agricultural production and market expectations,” according to CNGOIC.
MS – 18/09/2015