Negative spread, corn prices are showing signs of fatigue

  • Dec, 26th 2018

Thursday, the main corn contract 1905 contracted to receive the cross star. The market expects that US corn imports will increase after the New Year's Day, and the spot supply of corn will be affected. African swine fever continues to spread and it is expected that the live pig stocks will fall sharply in the first quarter of 2019. Negative sentiment in the corn and current markets continues to spread.

For the new market year beginning in October 2018, the biggest uncertainty in supply is the supply shock of US corn, sorghum, barley, DDGS and other imported products. According to the comprehensive estimation of corn production by the domestic analysis agency, the National Grain Center and the US Department of Agriculture, the amount of corn is between 200 million and 260 million tons, and the amount of corn consumption is 270 million to 290 million tons. Without considering corn stocks and imports, 2019 The annual corn production and demand gap is 30 million to 70 million tons.

There are two main possibilities for importing corn and alternatives in early 2019. First, in mid-December, foreign media reported that China imported 3 million tons of US corn and went directly into the reserve chain. If imported corn is not directly involved in circulation, its supply and price shocks to the domestic corn market are limited. In this way, without changing the original supply pattern of the domestic corn market, the number of non-consumed Chen corn inflows to the market in 2018 will be reduced to a low level around 10 million tons. The long-term corn supply and demand gap will continue to support the corn futures price to continue the bull market. Second, China imports nearly 20 million tons of corn, sorghum, barley, DDGS and other alternative products, directly into the circulation. Domestic corn supply was hit and corn prices continued to be under pressure. In the case of a redefinition of the supply and demand pattern, it is expected that the 2018 auction will not consume Chen corn to accelerate into the market, and the supply of Chen corn is expected to be 15 million tons. Considering that there are still nearly 80 million tons of Chen corn planned to flow to the market in 2019, the supply pattern of China's corn market will be tight to loose, which is the main reason for the lack of upward growth after the rapid decline of corn and starch 1905 contracts in December.

On December 19th, the Information Office of the Ministry of Agriculture and Rural Affairs released the African swine fever epidemic in Xiangzhou District, Zhuhai City, Guangdong Province. As of December 19, a total of 94 cases of African swine fever were found in 23 provinces, autonomous regions and municipalities directly under the Central Government. Except for Hainan, other provinces banned the transportation of pigs. Due to the concerns of farmers about the swine fever in Africa, the demand for piglets has decreased since August 2018. The enthusiasm of the farmers has decreased, and the consumption of feed has decreased. The decline of piglets and sows is the most obvious. According to the statistics of the Feed Industry Association, the total domestic feed production from January to October 2018 decreased by 2.3% compared with 2017. Among them, live pigs, meat and poultry and aquatic feed fell by 5.8%, 1.8% and 0.6% respectively. Egg and poultry feed consumption increased by 5.7%. According to the data of 180 feed enterprises tracked by the association, the output of piglets in pig feed was 2.823 million tons, down 7% year-on-year. The production of sows was 946,000 tons, down 5.7% year-on-year.

In the second half of 2018, the swine fever in Africa caused the cross-provincial transfer of sows and piglets to be restricted. The pigs in the main producing areas of the northeast and Henan were passively restrained, and the sows and piglets were in decline. According to the growth cycle of pigs and pigs, it is inferred that the effect of piglet replenishment reduction from February 2019 is gradually reflected, and the domestic pig stocks are rapidly decreasing. In the first half of 2019, the demand for pig feed in Henan Province, China's aquaculture and live pig export province, is expected to fall by 20%-30%, and pessimistic expectations for domestic pig feed consumption will fall by 10%-20%, and annual corn feed consumption is expected to fall by 5 million. 10 million tons. Affected by the fear of African swine fever, southern feed enterprises in December actively compressed corn raw material stocks. At the beginning of December, the accumulation of corn stocks in the southern ports increased, and the trading companies changed the risk of transferring corn, and the procurement strategy was adjusted to be used. After the New Year's Day, Guangdong, Hunan, and Hubei successively entered the bacon production period, and pork consumption is expected to increase. As the swine fever spreads, the negative impact of swine fever on the consumer market will continue to spread.

Jilin Corn Center Wholesale Market Statistics show that as of December 9, the sales of corn in Heilongjiang, Jilin, Liaoning and Inner Mongolia were 27%, 15%, 28% and 25% respectively. Corn sales in the above four provinces (regions) were 10%, 15%, 10% and 3% slower than the same period last year. Compared with the Northeast, the sales progress of corn in North China remained basically normal. The sales progress of corn in Hebei, Shandong and Henan were 24%, 35% and 39% respectively, which was the same as that of the same period of last year. Compared with previous years, the listing of northeast corn tidal food this year was postponed for one to two months. Jilin and Liaoning reduced production, and the willingness of affected farmers to sell grain decreased.

In early December, according to the price of 0.7-0.71 yuan/kg of corn tidal grain in the southern part of Heilongjiang production area, the price of corn shipped to the port was close to 1,900 yuan/ton. At the beginning of December, affected by the trade friction between China and the United States, the 2018 annual new corn purchase price of the northern port fell to a stage low of 1870-1880 yuan/ton. The drying towers and traders in the production area were upside down due to the production area and the port. decline. On December 14th, the second-class corn grain price of Shekou Port was quoted at 1990-2010 yuan/ton, and the price of second-class new grain in the port of 2018 was 2020-2040 yuan/ton. If the purchase price of the second-class Chenliang in the northern port is 1,840 yuan/ton, the flat price is 1890 yuan/ton. According to this calculation, the cost to the port of Guangdong is 2030 yuan / ton. According to the sales price of the day, the north and south ports are upside down for 20-30 yuan/ton. In December, the trade between the production area and the port, Beigang and Nangang traded losses, and the game between farmers and traders and grain-receiving enterprises continued. In the case of uncertain import policies in the corn market, the long-term participation of the corn futures market declined.

(Author: Everbright Futures)