China corn futures tank as market mulls US buying, state auction

19 May 2020 | Johnny Huang

China’s domestic corn futures plummeted on Tuesday as traders priced in reports of state-owned importers buying US corn and rumours that the government will start auctioning reserves next week.

Corn futures listed on China’s Dalian Commodity Exchange shed between 1% and 1.5% across the board as market participants now expect the country to start auctioning state corn reserves next Thursday, pumping additional supply into the market.

The most liquid corn contract for September delivery lost nearly 1.3% on the day to CNY2,017/mt (284.80/mt) by 14:30 London time Tuesday, reaching the lowest level since late March this year.

“There was pressure from auctions on domestic prices. The market rumours expect that it will start on the 28th,” one corn market source said.

Though China’s National Grain Trade Centre has not yet made an official announcement for auctions this year, state auctions of corn reserves normally kick off during late April and mid-May each year as the October harvest supply from the year before depletes.

Meanwhile, rumours that state-owned importers are seeking US corn were quickly circulated in the market on Tuesday, putting extra pressure on corn prices on Dalian.

The move followed confirmation that China had picked up 130,000 mt of corn from the US Gulf in the week to May 14, part of the 1.2 million mt of net sales that the country has made to date from the 2019/20 marketing year.

Despite the lack of detail on the volume they intend to buy from the US this time, the market sell-off continued into the evening trade session, which runs between 2100-2300 Beijing time.

The effect has even spilled over into the soybean market, as traders were worried that recent state-backed purchases of soybeans could come to a halt and switch instead to corn.

“I heard Sinograin has turned to corn. There is no price-checking so far [for soybeans],” one soybean trader told Agricensus.

The Chinese government has recently granted an additional corn import quota for state-owned companies in an attempt to stimulate more state buying of corn to fulfil the huge financial pledges made under the US-China Phase One trade agreement.