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China: How big is its corn supply?

China's corn supply and domestic fertilizer availability are two market variables to watch in the coming months.

Two interesting charts below. The first chart shows the standard “World Corn Ending Stocks and Ending Stocks/Use Ratio” that all of us in the business have used for years. This chart includes China’s corn supplies. The second chart, “World ex-China Corn Ending Stocks” excludes China’s supplies from the database. The two charts tell entirely different stories.

China currently claims to have supplies of 209 million metric tons compared to 223 million metric tons in the marketing year 2016/17. This compares to under 50 million bushels for all the years between 2004 and 2010.

China also claims to have an ending stocks-to-usage ratio of 71.1% when back 10 years ago it was running around 20%. The question is, if China has so much corn, why was it buying so much last year? China hasn’t stepped up to the plate this year at the same levels, but it still is a significant buyer. If we remove China from the equation, the remaining world, ex-China corn stocks-to-usage ratio at the end of this marketing year is projected to be 10.6%. But with China in the mix, the ending stocks to usage ratio is projected to be 25.8%. That’s a big difference.

world ex-china corn ending stocks.png

If China truly does have large stockpiles of corn, then why was it buying excessive amounts from us last year? Most of us would conclude that the supplies are not what China says they are or most likely the quality is very poor because its been in storage for so long. In any case, trying to estimate what China has and what it's going to do, adds extreme volatility and confusion to an already confusing market. At a projected world ex-China ending stocks-to-usage ratio of only 10.6%, this would be nearly the lowest in the last 26 years. A bullish situation.

world corn endging stocks and stocks to use.png

On the other hand, a 25.8% world corn ending stocks-to-usage ratio is not bullish at all.  Considering that we estimate this year’s U.S. corn ending stocks-to-usage ratio will be 10.5%, and it is difficult to build a bullish case for corn.

Fertilizer

Now let’s take a look at the most important fundamental between now and springtime. Are producers going to be able to acquire the fertilizer and specifically the nitrogen they will need to plant this coming year’s corn crop? We have been asked by many in the industry whether or not we’ve ever seen a situation like this in the past. With 45 years in the business, I do not recall any situation where we were concerned about producers not being able to get fertilizer.

In the last month many of our farm clients have had fertilizer contracts pulled out from under them even though quantity and price was locked in.  They got a refund on their original purchase, but now what do they do? In some areas of the country, co-ops have done a very good job of bringing fertilizer into inventory over the last six to 12 months. They’re going to be fine. But even if we lose only three million acres of corn, it’s hard to argue if we’re in a downside price movement between now and springtime. This market is going to be bidding on acres and if we drop five to 10 million acres of corn, then it’s “Katy bar the door”. This unprecedented situation means we could be in for be a wild ride for the next five months.

TAGS: Markets
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