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Commodities

Column: China snaps up a third of next year's corn needs from U.S. exporters

FORT COLLINS, Colo. (Reuters) - The 2021-22 marketing year is still a few months away, but China within the last few days has secured nearly a third of its expected corn needs out of the United States for next season.

Corn rests on the ground on Hodgen Farm in Roachdale, Indiana, U.S. October 29, 2019. REUTERS/Bryan Woolston

The volume and timing of the recent purchases are stronger and earlier than those of a year ago, which along with U.S. crop shortfalls catapulted Chicago corn futures to multi-year highs in unprecedented fashion.

The U.S. Department of Agriculture confirmed on Tuesday that 1.36 million tonnes of U.S. corn had been sold to China for delivery in 2021-22, which starts on Sept. 1. That marked the seventh daily sale, or flash sale, of new-crop corn to China within the last eight business days.

Through Tuesday, China had booked at least 8.2 million tonnes (321 million bushels) of U.S. corn for 2021-22, though trade sources suggest there could be some more sales on the way in the near term. The country’s first known new-crop U.S. purchase of 1.36 million tonnes was announced on May 7.

USDA last week projected China will import 26 million tonnes of corn from all suppliers in 2021-22, unchanged from the current year, so the recent sales are not outside the scope of market expectations. However, no one was certain how soon they might occur or how big they would be to start.

With the recent Chinese sales, new-crop U.S. corn commitments to all destinations stand near 12 million tonnes at minimum. The 2020-21 total had first crossed that mark in mid-August 2020, and that had been record pace. Sales to China had passed 8.2 million tonnes around Sept. 1, and the biggest volumes at that time had been sold in July 2020.

Traders need to continue to monitor possible old-crop cancellations. If China shifts some of the old-crop commitments into new-crop, that could potentially signal a smaller overall pool of demand than expected.

Through early May, China had cancelled a few old cargoes, though the amounts were small versus total sales. USDA confirmed on May 10 the reduction of 280,000 tonnes for 2020-21 and the market may have been bracing for more possible cancellations in the next days, but there have not been any since.

As of May 6, U.S. corn sales to China for 2020-21 totaled 22.9 million tonnes (902 million bushels) with 49% left to ship by Aug. 31. In the week ended May 13, U.S. exporters may have shipped close to 1 million tonnes to China, easily a marketing-year high and likely an all-time high.

CORN VERSUS SOYBEANS

China’s U.S. corn buying habits have been very different from their soybean ones. The soybean bookings mostly come in a smooth, upward trajectory that starts more sharply a few months before the new marketing year and then tapers off a few months in.

But the corn buying is almost like a step-function, as the large sales have come in multi-day chunks, and then a quiet period could ensue for months. That has probably complicated analysts’ understanding of China’s intentions within the past year.

Brazil is the biggest soybean supplier to China and the United States has now become China’s biggest corn supplier by far. It is not clear why the corn and soy buying styles are so different, but it may suggest a bit more urgency and sense of competition when it comes to corn.

China is the reason the U.S. soybean crop and acres planted have grown as much as they have in the last decade or so, but the U.S. corn market has not been structured around China’s needs. In recent years, exports account for about half of annual U.S. soybean use and around 15% of corn use.

Soybean exports remain the cornerstone of U.S. farm exports to China, though, and the new-crop bookings were on an above-average pace as of May 6 at 3.1 million tonnes. Unknown destinations, which are often China, have purchased 2.6 million, and China and unknown together account for 81% of new-crop soy sales.

Brazil is unlikely to have the record corn crop it had hoped for and its export potential has fallen, but the No. 2 corn supplier is not yet a threat to U.S.-China corn trade. Certain phytosanitary requirements keep Brazilian exports to China at negligible levels.

Brazil and China were reportedly in talks late last year about removing these restrictions to facilitate more corn trade, but there have been no details since.

According to USDA’s Kyiv attache, Ukraine shipped 4.1 million tonnes of corn to China between October 2020 and January 2021, representing “2.5-fold” growth. However, total Ukrainian corn exports were down 25% on the year during that period due to a smaller 2020 harvest.

Ukraine is the No. 4 corn exporter and was China’s top supplier before last year.

The opinions expressed here are those of the author, a market analyst for Reuters.

Editing by Matthew Lewis

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