Mounting stockpiles show China corn users prepared to pay up for supply security

Stocks of corn held by Chinese feed makers and other commercial grain users have jumped to multi-year highs in some areas, indicating that heavy corn users remain concerned about crop shortages even in the wake of the recent harvest.

China’s industrial corn users have snapped up the grain to feed a fast-recovering hog sector since 2019, propelling local corn prices 50% higher during 2020 and triggering record crop imports, including China’s largest ever U.S. corn deal just last week.

Many of the purchases were for immediate use, but buyers also replenished stocks in anticipation of enduring supply tightness. They kept buying even as farmers harvested one of China’s largest ever corn crops estimated at over 260 million tonnes last month.

The stockpiling comes after corn production was hit last year by typhoons and as steady government auctions depleted state reserves just as demand from the hog sector recovered from a deadly African swine fever outbreak.

“The new crop hit the market quite smoothly and farmers did not hold off on sales. Traders, (corn) processors bought the grain and turned them into inventories, so the rally was very fierce,” said Meng Jinhui, senior analyst at Shengda Futures.

From the start of the new crop season on October 1 through to January 10, commercial companies purchased 62.79 million tonnes of corn from farmers, up from 50.77 million tonnes in the previous year, according to data from the National Food and Strategic Reserves Administration.

That buying helped lift national commercial grain stocks to 15-year highs, with corn stocks in the northeast corn belt rising to three times last year’s levels, a top government official told state media last month.

Traders across key grain hubs are building up corn stockpiles, ranging from 2,000 tonnes to 40,000 tonnes, in anticipation of continued high prices and tight supplies, according to a survey by agriculture consultancy Cofeed of over 200 traders and farmers, released on Monday.

The U.S. Department of Agriculture (USDA) estimates that China’s consumption of corn will exceed production by roughly 25 million tonnes in the 2020-21 season.

Meanwhile, corn reserves held at Dalian Commodity Exchange warehouses surpassed 100,000 tonnes for the first time last month.

“It is not even about prices. We are stabilising production and stockpiling good corn,” said a purchase manager for a major poultry producer which has doubled corn inventories this year.

“Good quality corn is quite scarce this year…as long as it is good corn, we fight for it,” said the manager on condition of anonymity.

While domestic corn values have pulled back roughly 5% from their record peaks in mid-January, sources point to healthy demand from the livestock sector as liable to prevent a steep fall in prices.

“I don’t think corn prices will fall. There is fewer corn… while the livestock always needs eat,” said a farming supplies dealer named Hu in Henan province, who only gave Reuters his last name.

“But if there is state intervention, that’s something we can’t predict,” Hu said, referencing potential additional grain imports, reserve auctions of other crops, or other measures that Beijing may deploy to impact domestic grain prices.
Source: Reuters (Reporting by Hallie Gu in Beijing and Gavin Maguire in Singapore; Editing by Ana Nicolaci da Costa)