China’s Insatiable Corn Demand Paves Way for Even Higher Prices

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Jan 27 2021, 4:52 PMJan 27 2021, 7:33 PMJanuary 27 2021, 4:52 PMJanuary 27 2021, 7:33 PM

(Bloomberg) -- Corn’s surge to a seven-year high on the back on unrelenting Chinese demand looks like it could have a lot further to go.

Prices posted one of the biggest gains in recent years on Tuesday after China made its largest one-day purchase from the U.S. since July. The buying spree is far from over, according to agribusiness giant Archer-Daniels-Midland Co., which sees China’s rampant appetite for crop imports lasting several years.

China is scooping up record amounts of U.S. corn to feed a pig herd recovering from a deadly virus. That’s helped grain markets hit multiyear highs, stoking worries over global food inflation at a time when hunger is surging around the world due to the Covid-19 pandemic. Money managers are also betting on a continued rally, with bullish wagers on corn near the highest in a decade.

“It is especially the high demand from China that is pushing corn prices up,” said Michaela Helbing-Kuhl, an analyst at Commerzbank AG. “And as expectations are for higher Chinese corn imports also in the years to come, this is a fundamental factor which will support corn prices going forward.”

Benchmark corn futures rose as much as 1.9% to $5.425 a bushel in Chicago, the highest since 2013. Prices jumped 4.1% on Tuesday and are already up 12% this year.

In China, authorities have taken steps to ease record domestic corn prices and cope with surging demand, including allowing more imports and selling state stockpiles of other crops such as wheat. Think tank China National Grain and Oils Information Center urged traders not to hoard corn, with stockpiles amassed by downstream industries three times higher than a year ago.

Demand Outlook

ADM sees China importing a record 25 million tons of corn from all origins this season, a level that is sustainable going forward, Chief Executive Officer Juan Luciano said Tuesday. The merchant expects rebuilding global supplies of everything from corn to soy to take 18 to 24 months.

Read More: Crop Trader ADM Expects Tight Grain Supplies for Up to Two Years

U.S. government data on Tuesday showed American exporters sold 1.36 million tons of corn to China, for delivery by the end of August. The amount took the market by surprise, U.K.-based adviser CRM AgriCommodities said.

The sale to China gave traders a “fresh reminder that domestic stocks are tightening even further,” Ben Potter, an analyst at U.S. consultant Farm Futures, said in a report.

In other Chicago crop markets, soybeans climbed 1.4%, soybean oil touched a seven-year high and wheat also rose. Soy futures have been supported by China seeking more U.S. beans after top exporter Brazil suffered from a drought that delayed planting and then downpours that slowed harvesting. Trucker protests over pay have caused delays too at a key export hub in Argentina, a key supplier of oilseed products.

Protectionist measures have also bolstered wheat prices recently. Top shipper Russia is imposing a stricter-than-expected export tax after President Vladimir Putin demanded action to cool domestic food inflation.