Corn prices came under pressure and declined in the second quarter as traders sold off their holdings, leading to a relatively ample supply in the market.
Looking ahead to the third quarter, with trader inventories higher than the same period last year and selling interest likely to increase, coupled with the gradual arrival of new-crop corn, the overall supply is expected to be comfortable.
However, downstream demand growth is anticipated to be limited. Consequently, the supply-demand balance in the corn market may be slightly looser than in typical third quarters, suggesting a potential downward shift in the market's price center.
Second Quarter Sees Sustained Decline in National Corn Prices
The national average corn price fell consistently throughout the second quarter.
By June 30th, the average price had dropped to 2,295.73 yuan per tonne, marking a cumulative decline of 35.54 yuan per tonne, or 1.52%, since March 31st.
This downtrend was driven by traders selling their stocks in measured amounts, while downstream buyers maintained a hand-to-mouth, necessity-based purchasing approach.
Furthermore, factors such as government wheat auctions, the arrival of the new wheat harvest, imported corn, and targeted rice auctions contributed to a relatively loose supply-demand dynamic, leaving corn prices without strong supportive fundamentals and leading to the continued slide.
Market Supply Remains Relatively Ample
Data indicates that by the end of March, the average sales progress for farmers in North China was 78%, while in Northeast China it reached 85%, leaving minimal grain at the farm level and shifting the primary supply source to traders.
Starting from late March, as corn prices began to fall, some traders became more motivated to sell.
Although the pace of farmer sales slowed, the increased selling activity from traders kept overall market supply comfortable.
Ongoing government wheat auctions, the availability of sprouted wheat and lower-quality new wheat for feed use, along with the resumption of targeted rice and imported corn auctions in late May and early June, provided feed mills with diverse options for energy ingredients.
This led to a reduction in both the usage and procurement volumes of corn by these enterprises.
Current estimates suggest that trader inventories around the end of June were approximately 47.5 million tonnes, a 23% increase year-on-year.
With prices continuing to decline and the challenges of corn storage mounting, traders' willingness to sell is expected to rise, likely maintaining a comfortable level of effective supply.
While old-crop corn supply will continue to diminish in the third quarter, old-crop inventories are higher than last year.
Additionally, new-crop corn from southern spring planting will start hitting the market from mid-to-late July, followed by supplies from northwestern and northern regions beginning in August.
Overall, corn supply in the third quarter is projected to be more ample compared to the same period last year.
Limited Upside for Downstream Demand
Monthly consumption of corn for feed use gradually decreased in the second quarter.
Despite feed production and demand remaining at relatively high levels, the growing cost advantage of alternative energy ingredients in feed formulations led to a gradual reduction in corn usage.
The proportion of corn in feed production dropped from 42.9% in March to below 38%.
As a result, feed corn demand weakened, with an estimated quarterly decline of 9.81% month-on-month and 0.2% year-on-year.
Meanwhile, monthly consumption for deep processing also declined sequentially, though total quarterly consumption reached around 19.91 million tonnes, up 2.99% from Q1 and 9.39% year-on-year, supported by capacity expansions at some plants.
Historically, third-quarter feed production typically increases by 6%-9% compared to Q2, but the proportion of corn used in feed often falls by 2-10 percentage points.
Currently, hog farming remains unprofitable, and hog inventories are expected to decline further.
The layer hen flock is also in a cycle of reducing capacity.
Given the ample availability of substitutes, feed demand growth in Q3 is expected to be relatively limited.
For deep processing, Q3 is traditionally a low season, with processing volumes typically falling 3%-6% due to corn costs and downstream demand patterns.
Overall, corn demand in the third quarter is likely to remain slightly weak.
Supply-Demand Balance May Ease, Pressuring Prices Lower
With trader inventories above year-ago levels and new-crop corn gradually entering the market, effective corn supply is expected to be somewhat comfortable.
Downstream demand growth may be constrained by poor profitability in some livestock sectors, expectations for herd reductions, and the ample supply of substitutes, while deep processing demand is likely to contract.
Consequently, the supply-demand landscape for corn in Q3 may be slightly looser than in past years, pointing to a potential downward shift in the market's price center.
However, low inventories at downstream enterprises will underpin necessary restocking demand.
Furthermore, developments in the new crop growing season could periodically influence market sentiment, potentially leading to intermittent price rebounds.
The forecast suggests average prices for July, August, and September could be around 2,275, 2,265, and 2,285 yuan per tonne respectively, with prices likely fluctuating within a range of 2,260 to 2,295 yuan per tonne.
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