China canceled more corn purchases this week. As China switches to cheaper sources from places like Brazil, it’s putting more focus on a possible demand problem in the U.S. The canceled sales could also inflate the projected corn crop carryout, which is putting pressure on commodity prices.
On Thursday, USDA private exporters reported the cancelation of 233,000 metric tons of old-crop corn, which equates to 9.17 million bushels. The news came on the heels of previous cancellations earlier in the week.
Here's a 👀 at 🇺🇸 FAS #corn and #soybean export sales (accumulated, outstanding, & commitments) and how they stack up to the last 30+ years of #exports 🌱🌽🚜👇👇 pic.twitter.com/Y2x8fNsmoj
— John Newton (@New10_AgEcon) April 27, 2023
Garrett Toay of AgTraderTalk says the reason China is canceling orders from the U.S. is simple; Brazil’s prices are cheaper and as South America continues to harvest the Safrinha crop, it’s a more attractive option for China.
“We knew that we had a small gap of a U.S. export window in China when they came in and bought some corn from us, And that actually helped us out,” he says. “but now with the cancelations this week, I think for the most part, they’ve taken that lifeline back and we’re focused on Brazilian corn offers for July and August that are $30, $40 or even $50 a ton cheaper than U.S. offers. And that’s a problem, especially when we have a demand problem in a market that is fairly convinced that we’ve done the job of demand rationing.”
After USDA’s March Grain Stocks report, economists warned that China would be the wildcard for corn prices. At that time, Peter Meyer of S&P Global Commodity Insights said whether China continues to buy corn, or decides to stop buying, China will be the biggest determining factor for the corn stocks situation.
“If China keeps coming in here, you could have a problem with old crop. If China all of a sudden stops tomorrow, you could see the price sell-off. But I 100% agree with Joe Vaclavik, on the demand side, China’s the big gorilla in the room, so to speak.”
Fast forward to nearly a month later, and China’s decision to cancel some of those buys already on the books is spooking the market. Chip Flory, host of AgriTalk, says the cancellations are causing concerns about how big U.S. corn stocks will actually be.
“I think it will change the stocks situation, and I think that’s taking away the concern of the planting season and the conditions that we’ve got up in North Dakota, South Dakota, and Minnesota because we’re adding to the beginning stocks,” says Flory. “We’re not going to get to USDA’s corn export estimate, I just don’t think that’s going to happen, even though they’ve already pulled it back considerably. We probably need to take another 100 million bushels off of it, and maybe 150 million bushels and that goes directly into the beginning stocks for the ‘23/’24 growing season. So, we’re replacing some loss potential, maybe, with the beginning stocks. So, it’s a canceling effect.”
