Comparing corn consumption, stocks, and stocks-to-use ratio globally, this year is very different to the drought year of 2012.
What I think has changed is China’s demand since 2012-13, and that is the main reason we are seeing strong prices through to the July 2021 futures contract.
Delayed Brazil corn plantings may lead to the country starting its large export campaign about month or two later, to about July/August. This campaign will also depend on how large 2021 soybean shipment volumes in the first half of the year will be.
If Brazil is knocked out until mid-July, look for decent US corn export demand during the first six months of 2021 as buyers – including China – will need to source inventory from the US.
China could potentially have a large impact on the global corn balance sheet. Up until a few years ago, many analysts looked at the USDA global balance sheet to get a sense of global demand, or at least year-on-year changes in stocks, until China stocks swelled.
Then analysts starting removing China from the world balance sheet as stocks in that country were considered a mystery, until this year, when China depleted a large amount of corn from their reserves by selling old crop corn on the local market after domestic prices rose to around 5-year highs.
The September CPI food inflation index for China increased 7.9% from the previous year thanks to tightening meat supplies, while non-food inflation was largely unchanged.
What we found when going back to the 1980-81 crop year, the current USDA world stocks-to-use ratio which includes China suggests 2020-21 CBOT corn should average $3.25/bu. But when removing China (World less China), the average price will likely be around $4.40/bu.
The fact that China sold more than 55 million mt of corn out of the 2014 and 2015 crop year state reserves in 2020 tells us the secret state run corn reserves could be much lower than what USDA has pencilled in, as China has not procured a great amount of corn from producers over the past three crop year campaigns.
This makes us think China will need to make up for the shortfall by importing large amounts of corn, if they want to ensure a sizeable corn reserve.
China over the next decade may change the landscape of the world corn balance sheet by becoming a very large major importer.
World corn stocks could easily halve as early as 2023-24 if China drops their current self-sufficiency policy and allows both government state run firms and private companies to import more than 20 million tons of corn per year.
The largest impact may have to come from the private side. The 2020 corn trade quota import ceiling is currently set at 7.2 million tons with some claims this was raised by 2 million mt earlier in the year.
And the quota for 2021 is remaining at 7.2 million mt despite purchases from the US alone for the full 2020-21 marketing year coming in at 10.1 million mt.
But if China changes their grain trade quota import policies by raising or even abolishing them, China corn, and other grain end users may end up importing large amounts of wheat, barley, oats, DDGS, sorghum and corn from 2021 onward.
On the government side, an initiative to restock reserves with 2019 and 2020 crop year corn could be massive, given China has already unleashed more than 55 million tons in 2020. Remember China is spending money to build out storage facilities throughout the country. China could be the sleeping giant when it comes to the long-term outlook in corn futures.
Terry Reilly is a Senior Analyst at Chicago-based Futures International.