For the fifth month in a row the question of Chinese buying in world markets was a dominant feature for the futures markets, but we believe their corn buying has replaced their soybean buying as the most intriguing question, says Chad Burlet of Third Street Ag Investments, LLC.
While most have grown comfortable with a Chinese soybean import estimate of 98-102 million metric tons (MMT), the range on corn import estimates has ballooned out to 12-40 MMT. A leading investment bank even treated us to a 55 MMT import estimate for 2023.
Domestic corn prices in China have been stubbornly strong. The Chinese government has used its entire bag of tricks and prices have remained close to record highs. They have auctioned a significant quantity of government reserves to be used as feedgrains: 58 MMT of corn, 16 MMT of wheat, and 5 MMT of paddy rice. They’ve allowed the import of 4 MMT of sorghum and the purchase of 14 MMT of US and Ukrainian corn. They’ve even published articles about the evils of being speculatively long corn, and they’ve “interviewed” cash-market participants about bidding too high.
While China has been battling $10 corn for several months, the statisticians seem to just now be waking up to that reality. In their November WASDE the USDA cut their world corn carryout by 9 MMT. They increased Chinese imports from 7 MMT to 13 MMT and decreased the crops in the US and Ukraine. The International Grains Council used their Thanksgiving break to do them one better, they doubled their estimate of Chinese imports from 8 to 16 MMT and they cut world production by 10 MMT.
Other corn importers have taken note of their Chinese competitors and have picked up their own buying paces. Year-to-date corn sales are at an all-time record and they’re more than 100 million bushels (MB) ahead of the previous record. Export shipments have been slow to ramp up as the record soybean program tied up capacity, but those tables are starting to turn. Last week’s export inspections were a seven-week high for corn and a nine-week low for soybeans.
Despite the corn story becoming much more interesting, soybeans still gained on corn for the month. Even with today’s 2% sell off, soybeans were up 11.6% for the month versus corn up 5.6%. However, the all-important soybean:corn ratio ended the month at its lowest level since November 18.
While corn and soybean futures have been rallying on record sales and warming up for next spring’s acreage fight, wheat has been going in the opposite direction. In a real anomaly, March corn futures made their monthly high today and March wheat futures made their monthly low. For the month wheat was down 2.5%, losing 38 cents to corn and $1.36 to soybeans.
We commented previously about winter wheat gaining northern hemisphere acres this fall. While some areas have been dry, others have enjoyed excellent weather. France rates its winter wheat crop as 96% good to excellent. In the southern hemisphere the Argentine crop has stabilized around 17 MMT while the Australian crop has increased from 28 to 32 MMT. Even India, with back-to-back record crops, has emerged as a potential exporter.
The reality for US markets was that wheat futures were too high relative to corn futures. In many key areas of the world wheat and corn prices are close to parity, and in a few areas cash wheat is a discount to cash corn. Chicago wheat futures at $70/MT over corn futures was a real outlier and unsustainable over time. We expect that spread to continue to narrow over the next two months.
Learn more about Chad Burlet at Third Street Ag Investments
