China corn futures at 5-yr high on supply concern, short-covering

Chinese corn futures rose 2-4% Monday to their highest since September 2015 on fears of a supply shortage in 2020, market sources told Agricensus.

Corn futures listed on the Dalian Commodity Exchange posted their largest intraday gain this year so far, with the most liquid contract climbing 4.05% to CNY2,340/mt ($334.76/mt) by 1500 Beijing time Monday.

“Over the long-term perspective, there is a lack of corn,” a China-based analyst said. “Pig farming is recovering in the foreseeable future but the temporary stocks level is getting smaller and smaller.”

As well as stock depletion, output for China’s 2020 corn harvest in October is likely to fall because of dry weather in northeastern China, further tightening supply.

“Output might fall slightly this year. Many parts of the main regions had droughts,” the same analyst added.

Concerns about lower corn supply in China have been amplified by rapid short-covering in the domestic market - pressure from the long side has forced short-sellers to cover their positions at a multi-year price high.

“Short-sellers do not have the physical [material] and their positions were forced out by long traders,” a China-based trading manager at a major importer said.

According to market observers, Beijing could to halt auctions of temporary corn stocks by the end of this year - the country has been reducing its huge stockpile of more than 100 million mt since 2016.

Chinese policymakers have been trying to open up China’s corn market to more imports in future, for which the first step is to reduce state stocks and its intervention in the market.

According to China’s Ministry of Agriculture and Rural Affairs, domestic corn output 2020 will total nearly 266 million mt compared with gross demand of more than 285 million mt.

Although imports will reach an estimated 5 million mt this year, this leaves a 14 million mt supply gap that will partly be filled by auctions of government-held temporary stocks.