Coexistence of pressure and support, mainly corn or low-level oscillation

1、 Summary

In September, the corn market continued to show a weak pattern. Although there were favorable factors supporting corn prices, such as a gradual decrease in the amount of imported corn in China, the possibility of imported grains being controlled in the fourth quarter, a continuous year-on-year increase in the operating rate of deep processing enterprises, and a rebound in the inventory of breeding sows, the continued auction of imported corn, the approaching launch of new grains, and a pessimistic market mentality became the core factors guiding price weakness. From the perspective of the market, the main futures contract for November fell by 4.83%, reaching a new low of around 2100 since 2020, while the main futures contract for January fell by 2.6%. Overall, in addition to the trend of loose market supply and demand exerting pressure on prices, the pessimistic attitude of the market is also one of the main factors contributing to the weakening of corn prices.

Fundamental analysis

（1） Channel inventory gradually decreases

According to Mysteel data, as of September 20th, the corn inventory in the four northern ports was 1.456 million tons, with little month on month change and a year-on-year increase of 482000 tons, at the second lowest level in recent years. The domestic corn inventory in Guangdong Port is 237000 tons, an increase of 28000 tons month on month, a decrease of 11%, and a year-on-year increase of 25000 tons, an increase of 12%. The inventory level is at a moderate level in recent years. Foreign trade corn inventory was 56000 tons, a month on month decrease of 199000 tons, a decrease of 78%, and a year-on-year decrease of 366000 tons, a decrease of 87%, at the second lowest level since 2029. At the same time, the grain inventory in Guangdong Port was 1.631 million tons, a month on month decrease of 230000 tons, a decrease of 12%, and a year-on-year decrease of 13000 tons, a decrease of 1%, which is at a moderate to slightly higher inventory level compared to the same period last year. In addition, after September, as the new season of corn approaches the market, facing the pressure of overdue storage, policy reserves of corn began to be released in large quantities, with weekly investment exceeding 1 million tons. Imported corn continued to be released, increasing the supply pressure on the corn market, but also meaning the gradual clearance of inventory. In terms of prices, the closing price of corn in ports represented by Jinzhou Port decreased from 2360 in early September to 2170, Shekou Port decreased from 2460 to 2340, and the price in East China decreased from 2320 to 2020.

Overall, domestic corn and grain inventories continue to deplete, and the pressure on channel supply has significantly decreased. However, due to the listing of new grains, policy based import auctions, and market pessimism, spot prices continue to be weak. In the future, new grain will continue to be supplied in a concentrated manner within 1-2 months, and port arrivals are expected to gradually increase. However, considering the demand for on-demand procurement, the inventory recovery may be slower than the same period in previous years, and the supply pressure from channel inventory is expected to be limited.

（2） Low raw material prices and seasonal rebound in operating rates will support corn prices

On the product side, as of September 27th, the enterprise's starch inventory was 884000 tons, a month on month decrease of 119000 tons, a decrease of 12%, and a year-on-year increase of 186000 tons, an increase of 27%, which is at an absolute high in recent years; In terms of product prices, as the price of raw material corn decreases, the price of product starch also weakens. Among them, Jilin's first-class corn starch has decreased from 2880 to 2760, and Shandong's has decreased from 2960 to 2830. In terms of product profit, Jilin has turned from a loss of 102 to a profit of 38, and due to the rapid decrease in corn prices in Shandong, starch profit has turned from a loss of 100 to a profit of 179. In terms of operating rate, as of September 27th, the operating rate of corn starch was 55.02%, a month on month decrease of 2.95% and a year-on-year increase of 2.82%, which has a certain boosting effect on the price of raw corn. The raw material corn inventory of deep processing enterprises was 2.651 million tons, with a month on month decrease of 217000 tons, a decrease of 7.6%, and a year-on-year increase of 91000 tons, a growth rate of 3.5%. However, the year-on-year position is relatively low in recent years, and there is a demand for replenishment in the future. In the future, considering the concentrated increase in corn production and the price falling to a low level, there is a demand for deep processing enterprises to replenish their inventory. At the same time, after October, the start-up rate of enterprises will enter a seasonal recovery cycle, which is expected to drive enterprises to replenish their inventory and support corn prices.

（3） Considering the high incidence period of the disease, it is possible to breed sows in stock or reduce them

The main reason for the decline in pig prices in September was the decrease in the price of external three yuan pigs, which dropped from 19.03 yuan/kg at the beginning of the month to 17.75 yuan/kg at the end of September, mainly due to weak market demand. During the National Day holiday, however, the entire National Day holiday continued to be weak, and the average price of live pigs nationwide also dropped from 17.73 yuan/kg to 17.53 yuan/kg. In the fourth quarter, although Eryu has started to enter the market, considering the high risk of disease and the cautious expectations of the market, the overall replenishment of Eryu is limited. In this context, the profit of pig farming continues to shrink, with the profit from purchasing piglets decreasing from 485.84 yuan/head to 328.94 yuan/head, and the profit from self breeding and self raising decreasing from 739.66 yuan/head to 555.85 yuan/head. Although profits have shrunk, they are still within the profit range. According to data from the Ministry of Agriculture and Rural Affairs, the number of sows capable of breeding increased for three consecutive months from April to July this year. According to data from Steel Union, the inventory of sows capable of breeding increased for seven consecutive months from February to August, reaching 4.96412 million heads on a month on month basis. The increase in breeding sows may to some extent boost feed demand. However, according to data from the Ministry of Agriculture and Rural Affairs, the inventory of sows capable of breeding at the end of August 2024 was 40.36 million, a decrease of 50000 from the previous month and a decrease of 2.05 million from the same period last year, a year-on-year decrease of 5%. As October to April of the following year is a non epidemic high incidence period, the number of breeding sows may further decrease, which means that the growth of breeding sows in 2024 has ended in August. It is expected that there may be a possibility of lower than expected feed demand in the future. At present, the inventory of raw material corn in feed enterprises has dropped from 29.12 days at the beginning of the month to 27.95 days, which is at a low level in recent years. There is a demand for replenishment in the future, and alternative grains are being considered for withdrawal in the fourth quarter, which is conducive to boosting corn demand.

（4） The pressure on imported grains decreases in the fourth quarter

Recently, the pressure of substitution has decreased. On the one hand, corn imports continue to decline, with China's corn imports in August reaching 430000 tons, a sharp decrease of 63.9% year-on-year. The import volume of corn from January to August was 12.56 million tons, a year-on-year decrease of 15.7%. On the other hand, there are rumors in the market that other grain imports will also be restricted. As of August this year, the cumulative imports of grains including corn, sorghum, barley, and wheat amounted to 59.25 million tons, compared to 41.75 million tons in the same period last year. Under the pressure of substitution, corn prices continue to fall. Market rumors suggest that imports of grains such as sorghum and barley may be restricted in the fourth quarter, with the previous year as the benchmark and corresponding varieties not exceeding the total import volume of the previous year. In the previous issue, we mentioned that apart from corn, only barley and wheat had a gap of 1.61 million tons and 720000 tons in total imports from January to July compared to last year. In August, the imports of these two grains were 1.15 million tons and 1.95 million tons respectively, basically meeting the requirements for restrictions. This means that from September onwards, the imports of sorghum, barley, and wheat are likely to be very limited, which will greatly help alleviate the pressure on corn.

（5） New corn is gradually being launched, the heat of production reduction is cooling down, and policies are being implemented to store and enter the market

As new grains gradually enter the market, the enthusiasm for reducing production is gradually decreasing. So far, the market's expected reduction in corn production for the new season has dropped from around 20% to around 10-15%, and some markets believe that this reduction is not enough to reverse the market. However, policy reserves of corn will begin to be centrally rotated into procurement. China National Grain Reserves Corporation announced that from September 23rd to 30th, the purchase quantity of corn for the central reserve grain was close to 1 million tons, significantly higher than the level of previous weeks. The transaction prices are generally above 2200, with some exceeding 2300, indicating that the policy side is gradually improving market pessimism. Combining the low inventory of market channels and the low price of corn, which is conducive to low-cost procurement for channel merchants, the space for a significant decline in corn prices driven by policy collection and storage is limited.

（6） The basis still has the possibility of strengthening

In September, the national corn prices remained weak, with a drop of about 100-200 yuan/ton in ports and the East China region. The largest drop was in Shandong, with a drop of 200 yuan/ton, and in southern ports, the drop was 120 yuan/ton. The reason for the decline was the gradual concentration of new grain on the market, and the market sentiment was pessimistic against the backdrop of poor demand. In terms of basis, due to the weak performance of spot and futures prices and the rebound of futures prices at the end of the month, the basis first strengthened and then quickly weakened. In the future, although the concentrated listing of spot goods puts pressure on prices, there is still a possibility of a strengthening of the spot price spread in the future as channel partners and mid to downstream enterprises enter the market to acquire or to some extent limit the decline in spot prices. In terms of product raw material price difference, the current starch corn price difference in Shandong region has increased to a temporary high of 810 yuan/ton with the weakening of corn prices. However, due to the high inventory of products and the suppression of the recovery of operating rates, there is little room for a significant rebound.

3、 Summary and Prospect

Affected by the auction of imported corn, selling by distributors, and the imminent launch of new corn, the market expects loose supply and demand for corn, leading to a continuous decline in corn spot prices. With the negative fermentation, the spot prices of corn futures have all fallen to temporary lows. In the future, on the one hand, the supply of Chen grain is gradually clearing, and the inventory of middle and downstream channel merchants is low, which will lead to a demand for replenishment in the future. On the other hand, the policy guidance brought about by the start of storage collection will to some extent support the bottom and boost market prices. On the other hand, the price drop to a low level is conducive to attracting middle and downstream channel merchants to replenish inventory. Therefore, it is expected that the downward space of corn spot prices will be limited. However, caution should be exercised when dealing with the upper space. On the one hand, there is a possibility of lower than expected production cuts at present, and on the other hand, corn from production areas will be concentrated in the market after October, and the quality of corn may vary due to the influence of previous weather conditions. Therefore, caution should be exercised when dealing with the upper space. It is expected that corn will mainly experience low-level fluctuations during this period. For reference only.