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Friday’s confirmation that China had booked 2.1 million mt of US corn from the 2020/21 marketing year was among the more widely anticipated of its recent buying sprees, with trade sources globally expecting the statement and the volume long before the flash sales note landed in inboxes.
The spree, by any standards, has been epic as the USDA trailed four consecutive private exporters notes since January 26, laying out in bald detail the scale of China’s activity – with trade sources still expecting more to follow.
But what are we to make of the timing?
In four days, the confirmed buying against China’s book now amounts to 5.8 million mt – over and above the 11.8 million mt already booked for the current marketing year, taking China’s formal buying through the USDA’s 17.5 million mt forecast.
That doesn’t even factor in the possibility of China-bound volumes currently hidden in the 7.8 million mt that is registered to unknown destinations, or any buying from China’s more recent corn partner, Ukraine.
It’s a powerful message to the new US administration of President Joe Biden, which was sworn in just six days ahead of the release of the first USDA notice, and underscores the mounting suspicion that China’s domestic corn need is substantial.
It also comes just over a year after the signing of the Phase One trade deal, which brought a major commitment from the Chinese to ramp up their buying of US produce.
Up until that point, reports and rumours of China corn buying had been piecemeal, blending big volume private sales, often attributed to unknown destinations, with big named volumes at sporadic points in the unfurling tensions between Beijing and Donald Trump’s Washington DC.
On January 21, with the Biden administration still in its early hours, the USDA flashed a sale of 136,000 mt of soybeans to China with a further 336,500 mt of corn to unknown destinations.
Prior to that, January 6 brought an announcement of 102,616 mt of corn to unknown destinations, with China last-named as a volume buyer of US corn on October 14 in a private sales notice, which confirmed the purchase of 420,000 mt of corn.
That came just 24 hours after Donald Trump had tweeted that “This election is a simple choice: If Biden Wins, China Wins.”
‘Unknown destinations’
Between October 14 2020 and January 6 2021 there were nine flash sales announced by the USDA, amounting to 1.9 million mt of US corn sales.
All of them were filed under the ‘unknown destinations’ category.
Data for the current marketing year now shows almost 7.9 million mt corn booked for unknown destinations, the highest outright figure over at least the last decade and accounting for 16.2% of the total accumulated sales to date.
That’s the biggest unknown sales ratio to sales-to-date since the 2014/15 marketing year, when the much smaller 5.9 million mt amounted to almost 20% of accumulated sales, and is well above the 6% rate that the previous two marketing years have averaged at this point of the calendar.
The interplay between unknown destinations and the final named tally at the end of a marketing year leaves plenty of scope for final figures to fall short of their current totals, but trade sources have highlighted a potential way of accumulating buying to boost headline figures.
“Remember,” one trade source told Agricensus, “they do not need to register a sale or purchase until a US entity gets involved. Once they buy the FOB, or CNF, from a US shipper they are obligated to report it to USDA,” the source said.
“Hypothetically… a Chinese company, could buy from another foreign entity for next year or two years out and the trade does not need to be reported until a US company entered the chain,” the source said.
A second trade source, based in Asia, said that the volume is likely to have come from one of the state-backed traders “transferring whatever they bought in the last few weeks to their foreign entity.”
Fundamentals
And while the buying may satisfy some of the terms of the Phase One trade deal and mark out China’s willingness to work with the new administration, there’s also little doubt that the buying is underpinned by a chasm in China’s domestic corn supply.
For five years, China had sought to destock corn inventories that were once estimated to be hundreds of millions of tonnes.
Two years ago, the domestic auction programme held by the National Grain Trade Centre to cap prices and bolster supply managed to clear 100 million mt in seven months of auctions across Heilongjiang, Liaoning, Jilin, and Inner Mongolia.
That programme was accompanied by incentives to farmers to plant soybeans rather than corn and initiatives to boost the use of ethanol in the burgeoning car fleet, all of which came against the mounting tension of a trade war with its biggest trading partner – the US.
Attempts to focus on building stronger ties with Brazil and trying to minimise the loss of US soybean supply as the trade war deteriorated allowed attention to turn to beans, a dynamic accelerated by the onset of African swine fever and subsequently the outbreak of the Covid pandemic.
But as China powers back from both afflictions, the rapid expansion of demand has brought a hitherto unexpected strain to the corn supply chain.
That has led China to backtrack on its ethanol programme, mull the use of GMO seeds, and potentially resolve long-running phytosanitary agreements with South American producers, particularly Brazil, as it seeks to plug the growing gap.
With much of the US buying focused on the June and July period out of the US Gulf, there are already concerns being voiced over whether logistics can cope with the demand, which could yet add another twist to the unfolding scenario and keep corn well above the $5/bu mark.
As for corn diplomacy, China clearly means business although whether the efforts to manage the buying into headline-grabbing numbers reflects a pragmatic approach to managing a bulk volume requirement or is intended as a message to the new president remains to be seen.
For Biden and his administration, they will doubtless be hoping this is a welcome olive branch after a fractious few years, but it could also serve as a stark reminder of the power that a global customer can bring to the domestic stage.