China’s Buying Spree Helps Push Corn Futures To 8 Year Price Highs

China’s record corn imports due to crop failures and inadequate state reserves have diminished available global corn supplies and pushed prices higher.

Late last summer it was apparent that problems with Chinese agricultural production had forced China’s hand; the Asian giant had already surpassed its total annual corn import estimates on day one of the new crop year that began September 1, 2020. Now, less than eight months into the same crop year, it seems China’s agricultural woes were worse than imagined, and global agricultural markets, particularly corn markets, have felt the effects of China’s corn crop deficit.

China is importing more corn than ever before; actual monthly corn imports surged in March 2021 (chart below) reflecting the fulfillment of prior purchases made, a good amount of which was purchased from the United States.

The result has been a dramatic reduction in USDA estimates of corn supplies here in the US. In fact, in its most recent World Agricultural Supply Demand Report (WASDE) dated April 9, 2021, the USDA estimated this season’s corn ending stocks will be nearly 30 percent below last season’s levels. That represents a 567 million bushel decline in US domestic corn inventories in just one year’s time. Put another way, the excess corn inventory left over after all supply and demand offsets are calculated has dropped from just over 50 days of supply for the crop year that ended August 31, 2020 to just over 33 days of supply estimated to be left when the current crop year ends on August 31, 2021. Corn prices have responded to this hefty shift in the US corn balance sheet; prices of the most active CBOT corn futures contracts are approaching levels not seen since late summer of 2013 when corn prices were coming down from their highest levels ever (set in 2012) after the drought years of 2010 and 2012.

Some relief may be on the horizon; China’s internal corn prices, which had been steadily rising to extremely high historical levels even in the face of months of massive state sponsored sales of corn inventories, seem to have finally peaked in late February 2021, likely in anticipation of the huge wave of corn imports that hit Chinese shores in March.

Notably, US corn export sales commitments have been level for the past two weeks (chart below) which reflects a slowdown in Chinese purchases of US corn.

The slowdown in Chinese corn purchases, coupled with the dual approach of South America’s corn harvest and the Northern Hemisphere’s corn planting season, could eventually slow or even halt corn’s almost eight month long price rally.

But the almost 30 percent projected decline in year-on-year US corn inventories, along with a corresponding estimated 14 percent decline in global corn inventories for the same time period can’t be ignored; it will take until harvest time next season, that is the 2021/22 crop year that has not yet begun and won’t be harvested until 2022, to potentially replenish corn inventories. The current corn price rally to multi-year price highs will certainly motivate farmers around the globe to plant as much corn as possible, which should eventually loosen supplies. Until then the world will have to wait and count on the ability of farmers and the cooperation of Mother Nature to provide the all corn we need, plus an excess inventory level that keeps the markets comfortable.