China's small purchase of 115,000 metric tons (5.4 million bushels) of corn last Wednesday was small. "However, the one-day sale actually trumps the total yearly purchases for each year since 1998,” says Bill Biedermann of Allendale. "In 1994/95, they bought 3.2 mmt (128 million bushels) and in 1995/96 they bought 2.2 mmt (87 million).” China has said it plans to buy more. Should they approach those past totals, the corn market could be explosive.”
Some believe that the import purchase was designed to scare Chinese producers into letting loose supplies they have hoarded in response to rising domestic prices. Others say it is cheaper for China to import from the U.S. right now than to transport home-grown corn from the north to the south, where the livestock are. It remains to be seen whether they'll back off imports as local prices ease, as they have since the purchase was announced, or whether they are serious about their buying plans.
Gulke Group President Jerry Gulke's first impression was that "China Syndrome" price strength would serve as an opportunity to add to 2010 hedges. "Had this apparent admission that China needs to buy corn for the longer term happened last year or two years ago, we would have had corn 15¢ to 30¢ higher, but now we have a comfortable supply cushion worldwide and the U.S. can afford to sell China 100 to 200 million bushels," he says. "With the stellar planting season we've had, we could see a national corn yield in the 166-bu./acre area. Times 87 million acres and the improved yield could more than supply China's needs. In other words, we may be approaching the point where we need a Chinese deal or a weather impact to support prices of what appears to be a mega corn crop on the way.”
Think about it, he says: "This news may help to keep the corn planters rolling. I have been thinking of planting another 80 acres to corn before switching to beans, but soybeans also are profitable for now."
However, chart action last week was very positive, and China buying and its psychology could be just what the market needed to turn the tide and put a bottom in corn.
If you've already priced a substantial portion of your crop through forward contracts or hedges, buying a call option could keep you in the game, should prices take off. Likewise, Gulke cautions end users not to be caught asleep if China's entry prompts speculators to jump in and buy corn.
Listen to Gulke's analysis:
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