TFM Perspective 9-10-21


Corn’s Demand Dilemma

With the growing season all but behind this year’s corn crop, market-moving factors will turn to USDA reports and harvest results. Embedded within the reports will be demand expectations. The big story that developed over the last two years has been growing demand from China, as tightening inventory and a rebounding hog herd after African swine fever affected the herd. Exports of U.S. corn to China for the 2020-2021 marketing year should be near 23 million metric tons. The USDA’s current imports of U.S. corn for China in the marketing year ahead is 26 mmt. Could the current estimate 2021-2022 be two aggressive?

China is expected to produce a bumper corn crop this year, after higher prices encouraged farmers to plant additional corn acres. This could mean the current projected 26 mmt is too high. Additionally, quality concerns with some of the China wheat crop could mean more feed wheat is available than was originally expected. Bulls will make the point that record-high corn prices in China were for a reason. The 2019-2020 crop was likely smaller than estimated and long-term supplies became critically tight. Add to that the concerns of a resurgence of COVID, and China may have strong interest to secure copious inventories as soon as possible in a long-term effort to maintain food and feed availability. China’s strong buying in spring has since slowed. It is likely they secured enough inventory from spring purchases to keep the supply pipeline active in summer. New crop sales have slowed after a robust round of purchases prior to the U.S. and China growing season. This buying was likely a strategy to ensure new crop to be shipped out of the U.S. during harvest. The potential change in their buying approach for the year ahead will likely be buying as needed.

The buy-as-needed (or just-in-time) inventory method makes sense. With Northern Hemisphere crops just about made and the Southern Hemisphere just starting to plant, there probably isn’t much of a rush to secure big inventories at any one time. Let the U.S. farmer store it. What will be important in the weeks and months ahead is the flow of sales. China could be a consistent buyer, though not likely aggressive, especially if prices rally. If weather becomes a factor for the Southern Hemisphere, then a more upbeat buying pattern is expected.

The take-away for the U.S. farmer is that prices, despite expected purchases from China, may already have strong exports factored in. Forward selling on good prices, as well as carry in the deferred futures months, may be a more appropriate marketing strategy, as prices are at their highest level in eight years. Don’t let prices slip away, especially if a big crop in China suggests future downward revisions to U.S. exports. Stay ahead of the game, and plan for the unexpected.

If you have comments, questions, or suggestions, contact Bryan Doherty at Total Farm Marketing. You can reach him at 1-800-334-9779, extension 300.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.


Bryan Doherty

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