Farm Futures Logo

What changed with China?

Rising domestic corn demand combined with drawdown in reserves pushes China back into the international market.

Jim McCormick

July 17, 2020

4 Min Read
U.S. and China flags side by side

When the Phase One trade deal was announced earlier this year, many in the trade were skeptical that China would come even close to meeting the obligations that they agreed to. It looks like they knew exactly what they were doing when they signed the deal. By reaching an agreement with Trump, they were able to slow the escalation of tariffs, but as for the buying commitments, it is looking like they committed to buying products that they were needing/going to buy even without the deal. They have been aggressive buying U.S. beans lately, which was expected, but the corn buying spree the past few weeks has been a surprise. 

China has bought 3.117 MMT of US corn for the 20/21 marketing year. It is anticipated that these purchases will be shipped out by the end of the calendar year. We heard reports that China was pricing additional corn for delivery in the first quarter of 2021 this week. The U.S. has shipped China .534 MMT so far in the 19/20 marketing year, and another .824 MMT is on the old-crop books yet to be shipped.  We estimate that the U.S. and Ukraine have sold China 5.98 MMT of corn, and this number might exceed 6.5 MMT if the U.S. gets all the committed old crop shipped by the end of the marketing year on Aug. 31, 2020.

We believe the realization of rising domestic corn demand combined with the extended drawdown in old crop reserve stocks to near deficit levels has finally reached a point where China must come back into the international corn market as a buyer. China has likely sold 28 to 30 MMT of corn out of their state reserves to control food inflation. If they keep selling at the current pace, they could be out of stocks by September. Estimates are that the Chinese production to consumption deficit ranges from 14 to 30 MMT. China has been buying roughly 2-5 MMT of corn a year, mostly from the Ukraine. The increase in purchases to 5.45 MMT this year seems to be an indication that the game has changed in recent weeks, and imports could jump to 7-10 MMT this year.

Related:Corn, soybeans finish week in the green

Food security and safety in China has become a big concern recently. After ASF devastated the domestic pork supply and food prices skyrocketed, the Chinese were forced to import massive volumes of pork to offset the lost domestic production and bring down food prices. When COVID-19 ran rampant through the country, Chinese consumers’ hoarded bags of rice and flour supplies ran short despite an abundant supply of wheat. The result of shortages and higher prices has consumers in China questioning the reliability of the food supply, which is putting pressure on the government to make sure they have a stable supply of food and control food prices.

Related:9 market fundamentals to monitor daily

We believe that the net effect of this will be China will continue to be a buyer of US beans but potentially even more exciting, a long-term buyer of U.S. corn.

Reach Jim at 815-665-0461 or  [email protected] @jpmccormick3

The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. AgMarket.Net is the Farm Division of John Stewart and Associates (JSA) based out of St Joe, MO and all futures and options trades are cleared through ADMIS in Chicago IL. This material has been prepared by an agent of JSA or a third party and is, or is in the nature of, a solicitation. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading infromation and advice is based on information taken from 3rd party sources that are believed to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. The services provided by JSA may not be available in all jurisdictions. It is possible that the country in which you are a resident prohibits us from opening and maintaining an account for you.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

Read more about:


About the Author(s)

Jim McCormick

Hedging strategist, AgMarket.Net

Before joining AgMarket.Net, Jim was a senior broker with a nationally recognized firm and has 24 years of experience as a registered commodity representative, servicing both commercial and individual trading and hedging customers. He specializes in hedging and trading strategies using combinations of forward contracting, futures and options for corn and soybean farmers and livestock producers. He has a Series 3 futures brokerage license and earned a bachelor’s degree in Agribusiness Management from Purdue University.

Subscribe to receive top agriculture news
Be informed daily with these free e-newsletters

You May Also Like

Aug 29 - Aug 31, 2023
Farm Progress Show annually hosts more than 600 exhibitors displaying new farm equipment, tractors, combines and farm implements; seed and crop protection products; and many additional farm supplies and services.