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Is this the start of a demand-driven bull market?

China is binge-buying grain while ending stocks are likely shrinking.

In the latest USDA weekly export sales report released on September 17th, China bought a net 14.4 million bushels of corn, including 5.5 million bushels that were switched from previous sales to an “unknown” destination.

“Unknown” buyers bought another net 14.2 million bushels last week as well.  Accumulated sales are now 1,0147.7 billion bushels vs. 869.5 million bushels a year ago.

The answer everyone wants to know is how much corn China will buy and what it will mean to the U..S and world balance sheets.

USDA stated that China’s TOTAL imports would be 7.0 million metric tons (MMT) in their latest WASDE estimates released on September 11th. But, year to date, China corn purchases are already at 9.24 MMT showing USDA’s estimate is way understated.

Other corn exporters

We estimate that Ukraine could sell 4 MMT while Brazil sales should come in around 3-4 MMT; Argentina sales should be in the 2-3 MMT range. Using these estimates would put China imports at the high end of the 15-20 MMT range, while some trade estimates have China imports topping out at 30 MMT.

Why China is binge buying

The reason for the surge in buying can be attributed to hog herd rebuilding, production cuts due to three typhoons (5-10MMT) and record domestic corn prices around $9/bu. Domestic Chinese corn values on the Dalian Exchange are at highs not seen in over five years. The Chinese have been emptying their state reserves at a record pace this summer. This year’s Chinese auctions were 57 Mt with 14 consecutive weeks maxed out at 4Mt/wk.

It’s not just China that is increasing corn imports. Other significant importers led by the European Union (EU) are anticipated to import 125 MMT, a 9 mt increase vs. last year. The EU needs to import 7.6 MMT more corn than last year and is the 2nd largest increase after China.

Ending stocks may shrink

Based on exports available from non-U.S. sources, U.S. 20/21 exports might exceed 2.7 billion bushels in meeting this demand; USDA currently estimates exports at 2.325 billion bushels. This will drop the U.S. ending stock to 2.128 billion bushels if no other adjustments are made to the balance sheet.

My colleague’s column two weeks ago discussed the idea that there’s another reason to think domestic stocks will drop, and it’s coming at the end of the month. World ending stocks held by major importers and exporters might fall 11.4 MMT. Stocks ex -PRC might fall to 80.3 MMT, lowest in five years, assuming a U.S. crop of 14.9 billion bushels with 20/21 exports of 2.720 billion.

We believe the net effect of all this buying will result in higher prices as the trade realizes that we might be seeing the second great grain robbery. If you have questions, feel free to contact me directly at 815-665-0461 or anyone on the AgMarket.Net team at 844-4AGMRKT.

Reach Jim at 815-665-0461 or  jmccormick@AgMarket.Net @jpmccormick3
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