Three reasons why US corn exporters aren’t sweating on China – for now

The bald statistics should set alarm bells ringing as the US government takes an increasingly accusatorial stance on China, Covid-19, and the Phase One trade deal, prompting grains traders to look again at supply and demand balance as they gauge what’s at stake.

China, after years of absence, is now the sixth biggest named customer for US corn, according to the USDA’s total commitments for this marketing year, and the second-biggest for the new marketing year, which starts on September 1.

But in terms of the volume lifted, China is at the bottom of the table – only one panamax-sized cargo has made the move, 61,081 mt from the 881,081 mt bought, with most of that lifted piecemeal from the interior container market and accrued over many months.

It is a conversion rate of just under 7% and could be even lower given that there are a further 1.9 million mt of commitments that are still labelled under ‘unknown destinations,’ some of which are likely to also be China’s.

Even with the rhetoric being dialled up in Washington DC, corn traders aren’t hitting panic buttons yet.

Here are three reasons why:

Harvest from hell

It rained almost from the moment farmers started looking to their fields to plant corn, right through the typical end planting date and on into June, making the harvest one of the latest ever planted and teeing up a raft of issues around harvest.

Late October and November saw rains return, and Midwest states drain gas supplies as driers ran overtime, but the damage was done and the quality issues that were particularly evident in Pacific Northwest volumes deterred Asian destination buyers.

Overlaying that with huge South American harvests and Covid-19 infused demand destruction, and the year was already a write-off.

“I had left China off buying any old crop myself and, honestly, out of the PNW I’m right,” one market source said

Any China volumes are likely to leave from the US Gulf – and those that do are likely categorised as a bonus given the year-to-date.

So far, sorghum

While China’s corn buying has promised much and delivered less, the country’s US sorghum purchases have ramped up sharply – the USDA expecting imports to hit 2.7 million mt this marketing year, versus 652,000 mt in the previous year.

China has committed to buy 2.1 million mt of sorghum and lifted 1.4 million mt as of the end of April – an execution rate of close to 70%.

While sorghum often prices as a premium to corn, and corn prices are depressed, the Phase One deal is about hitting dollar values, making sorghum a valuable part of the solution.

US Texas Gulf FOB premiums hit 260 cents over the July corn future overnight.

In mid-April, May loading cargoes stood at 193 cents over July as demand from China was supported by buying from Mexico and Japan.

2020/21 and beyond

The USDA called the upcoming US corn area at 97 million acres, with US farmers going gung-ho to plant as quickly as possible, clocking up plantings on over half the expected area already.

With the early pace, and barring intervention from weather, yields are likely to be good and the country could see a harvest well in excess of a bin-busting 400 million mt.

With domestic ethanol and feed demand uncertain, export markets will be key in placing a sizeable chunk of that volume – making trade relations in 2020/21 critical, and Asia will play a substantial part in that if inventories aren’t to swell.

“At the end of the day, whether China executes the 1.3 million mt total of corn on the books between this marketing year and the next does not seem to matter. It is what comes beyond that,” a second US-based market source said.