Grain markets in 2021-22 will revolve around how much corn China buys and estimates are all over the map, says an analyst.
Todd Hultman, lead analyst for DTN, has seen private industry forecasts ranging from 15 to 35 million tonnes.
Even the United States government appears conflicted.
The U.S. Department of Agriculture is forecasting 26 million tonnes of Chinese imports in its World Agricultural Supply and Demand Estimates report.
The U.S. Foreign Agricultural Service is estimating 20 million tonnes. That six million tonne difference could have a profound impact on corn and other grain prices.
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Hultman said getting the Chinese import number pegged down will be critical to figuring out where grain prices are heading in the year ahead.
“It’s the whole ballgame as far as corn is concerned,” he said.
China shocked the corn market last year when it suddenly purchased 26 million tonnes, up from 7.6 million tonnes the year before.
It is the main reason cash corn prices are trading above US$6 per bushel and 2020-21 U.S. ending stocks are forecast at 1.46 million tonnes, about half of the previous year’s levels.
If the USDA is right and the country buys another 26 million tonnes of the crop, ending stocks could get even tighter in 2021-22, further supporting prices.
The good news for Canada’s growers is that strong corn prices will in turn support wheat and barley, just like they did in 2020-21.
“For a long time wheat prices really didn’t have much of a bullish argument but they certainly climbed higher with corn prices,” said Hultman.
Lately, there are other bullish factors supporting wheat, like the poor North American spring wheat crop, Russia’s steadily declining production estimates and harvest problems in western Europe.
China has already bought 10.74 million tonnes of U.S. new crop corn, or about half the volume it would likely consume for the entire year given a 26 million tonne total world purchasing program.
And the new crop year hasn’t even begun, so it is off to a very good start. But those purchases were made in May and there hasn’t been much action since.
China may be balking at today’s prices. Most of last year’s purchases were made in the $3 to $4 per bu. range before the market realized how short China was.
“That surprise factor is gone,” said Hultman.
“Everybody is onto China and China’s needs now. They’re going to have to pay a lot more than they did a year ago.”
China is doing everything it can to reduce its dependence on imports. The government encouraged growers to plant more of the crop this year and seeding was up 6.2 percent. However, there has been some poor late-season weather that could damage yields.
The government is also encouraging hog producers and feed mills to use more alternative crops like wheat and barley in place of corn and soybean meal.
Hultman is skeptical about the impact of that policy. He said livestock producers have traditionally used corn and soybean meal in rations because they are the most efficient.
Barley and sorghum are good substitutes but there isn’t enough of those commodities to replace sizable volumes of corn and soybean meal. Wheat is another alternative but it is not as easily digestible.
He thinks the new feed policy will have limited impact, although it could reduce imports slightly. Hultman is forecasting 23 to 24 million tonnes of imports, which although lower than the USDA number is still quite bullish.
Corn futures prices are still in excess of $10 per bu. on China’s Dalian Commodity Exchange.
“It’s signaling that there’s still a great need to import corn in China,” he said.
