CME: Corn Futures Higher as China Purchases Corn

US - US nearby corn futures were sharply higher on Friday as market participants reacted to news that China purchased 1.472 million metric ton of corn (58 mil. bu.), write Steve Meyer and Len Steiner.

This was one of the biggest one time corn purchases on record to this market and it reignited speculation that old corn crop stocks are very tight and may need some rationing until the new crop starts flowing in. The fact that the new crop has been planted relatively early in the ECB should provide some notable supplies before the end of August (official end of marketing year) and yet grain markets remain concerned about the effect some cooler weather on corn breaking above ground. But back to the China story, there has been plenty of speculation in recent months as to how big a buyer of US corn China will be in the coming years.

Not very long ago, China was a net exporter of corn to a number of Asian destinations, benefiting both from a freight advantage and lower costs. However, feed demand in China has been outpacing supply increases. In 2009/10 marketing year, China produced 163.97 MMT (~6.463 bil. Bu) of corn and imported about 1.3 MMT. In marketing year 2011/12, China corn production is forecast to increase by almost 28 MMT or 17% and yet China is forecast to import 4 MMT. The increase in Chinese feed demand has tightened feed availability for a number of Asian markets that traditionally imported corn from China. And as China now accounts for 1 out of 5 bushels of corn produced in the world, the market is now vulnerable to weather events in that part of the world more so than at any other time on record.