Recently, there has been a strange phenomenon in the domestic corn market, the corn price in North China (Shandong, Hebei, Henan) will become a depression of the national price, and the corn in Heilongjiang will become the national price highland, and some North China corn has flowed into Liaoning and northern ports, which has broken the historical law. What is the reason for this anomaly in the market, and what impact will the price deficit have on the corn market in the future?
Why is North China corn sold to the Northeast?
The reason is: the increase in corn production in North China has led to a large price decline, and it has a price advantage when sold to Northeast China.
Heilongjiang is the main corn producing area, has a natural geographical advantage, large-scale farms and contiguous land produce a large number of corn, under normal circumstances the price is the lowest place in the country, the disadvantage is that the logistics distance is long, need to bear higher logistics costs, but in recent years, the local deep processing industry has shown an increasing trend, effectively digesting the local corn.
Most of the corn planting in North China is relatively scattered, the yield is low, the overall grain quality is not as good as the Northeast corn, more importantly, Shandong is a combination of production and marketing area, in addition to planting corn, there are more downstream enterprises, is the concentration of deep processing and feed enterprises, which will cause the local corn is not enough for local enterprises to digest.
According to past data, the annual corn gap in Shandong, Hebei and Henan provinces is about 20 million tons, which needs to be supplied by corn from Northeast China, but this year's situation is special, and the overall corn output in Heilongjiang in 2023/2024 is stable and decreasing, while North China is increasing production, and the increase is at least more than 10%.
In addition, last year, a large amount of sprout wheat (said to be 40 million tons) in North China flowed into local enterprises in North China, replacing corn, so that not only did there be no shortage of corn, but also carried over stocks. The increase in production and the substitution of wheat led to a surplus of corn in North China, and prices fell sharply. Up to now, Shandong corn has fallen to 2300 yuan/ton, and Heilongjiang is only 30 yuan/ton, the corn in the two places is transported to Liaoning, Heilongjiang freight is 200 yuan/ton, Shandong freight is 120 yuan/ton. Counting the trade difference, Shandong corn has more advantages, and enterprises with low requirements will give priority to Shandong corn.
What is the problem of corn sales in North China and Northeast China?
The problem is: the counterflow of corn in North China reflects the excess supply side, and the short-term corn market is not optimistic.
For the North China corn counterflow, the market is also more concerned about the recent market, the disk is also trading this factor, just a few days, the main contract has fallen 40 yuan / ton, for this phenomenon can be sustained, the author also conducted a survey on the market. According to traders, in recent days, 30% of the arrivals at the northern ports are North China grain, and it is said that some of them are sent to the south under the guise of Northeast corn, and some are for local deep processing.
Since it is already late April, the sales of surplus grain in North China have entered the second half stage, and there will not be a large amount of North China corn flowing back to Northeast China in the future. In addition, after the abnormal regional price difference appeared, some traders would seize the opportunity of this price difference to build a warehouse in North China, resulting in the return of the price difference. Although the counterflow of corn in North China is unsustainable, it also reflects the oversupply of corn at this stage, and the former sales area has changed from a gap to an output area.
For demand, it is currently in a downturn, the downstream is not to buy, although their corn inventory is low, but cheaper substitutes (imported corn, sorghum, barley) are still being imported, the recent corn flour import has contracted, for sorghum, barley imports have not changed significantly, so, some downstream enterprises are still more inclined to buy cheap forward orders.
According to the latest data, the mainland imported 1.71 million tons of corn in March, with a total of 7.9 million tons from January to March, an increase of 5.1 percent year-on-year; the mainland imported 560,000 tons of sorghum in March, and a total of 2.17 million tons from January to March, an increase of 323.6 percent year-on-year; and 1.72 million tons of barley in March, with a total of 4.43 million tons from January to March, an increase of 162.2 percent year-on-year. Judging from the import data, substitutes are still coming in, which is a kind of suppression for domestic corn, the future of domestic corn is still relatively pessimistic, and many aspects of the benefit in addition to policy support, there is no obvious drive at present.
Comprehensive analysis shows that the increase in corn production in North China, the substitution of sprout wheat and the sluggish consumption have led to a surplus of corn supply in North China, and the price has a certain advantage over Northeast corn after a sharp decline, and there is a phenomenon of North China corn returning to Northeast China. Since the price difference between North China corn and Heilongjiang is already a historical extreme value year-on-year, it is not sustainable in the future, and there will always be traders who do low-risk arbitrage and build warehouses in low-lying areas, and the price difference will return to a reasonable level in the future.
For the trend of corn prices, the current situation is still in the oversupply side, and the price of corn is still weak in the short term; for the medium and long-term corn trend, considering the low channel and downstream inventories, and the next July to August facing the period of green and yellow, the price should return to a reasonable level, mainly strong shocks. (This article was originally published in the A03 edition of the Grain and Oil Market News on April 20, 2024)
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