By the Numbers: China Can Buy U.S. Corn $3 Cheaper Than Domestic Prices

As the U.S. waits to see if record corn purchases from China will turn into record shipments, there may be an economic incentive to buy more U.S. corn.

American Farm Bureau Federation chief economist John Newton says the economics show China can buy U.S. corn at a discounted price compared to what buyers are seeing domestically.

“I think one of the reasons that corn exports are so strong is obviously China, and when you look at Chinese corn prices, I was with the U.S. Grains Council last week, and they reported that corn prices in China were $3 per bushel higher than U.S. corn,” says Newton.

The American Farm Bureau economist points out while corn prices in China are a few dollars higher than what the U.S. is seeing, he says there were still good margins on hog feeding of corn in China.

“That’s one of the major reasons that we’re seeing such large commitments on the corn side,” says Newton. “So, I think the fundamentals are still there. But again, as you get later in the year, if you start to see any concern that maybe that USDA number that’s printed of 2.6 billion bushels may not materialize, that’s what the bulls or bears want to see.”

Newton put together a graphic that shows just how much China has committed to buy, and how much has actually shipped.

The slow shipments on the corn side may be one reason USDA didn’t increase its China corn import number more, but why they didn’t make bigger adjustments is still a question that is puzzling analysts like Chip Nellinger of Blue Reef Agri-Marketing.

“What are they waiting on?” asks Nellinger. “You can make one argument that they’re waiting on the shipments of corn to start catching up to the commitments on the sales. You could argue there’s still time for some of those exports to be canceled. In fact, last week, part of what kind of set off all that selling in the corn market was a cancellation of a corn sale to unknown. But I think that’s the question.”

Nellinger says, historically, the USDA is slow to make major adjustments this early.

“I think, historically, what you learn from the USDA is they’re going to slow play this thing going forward,” he says. “They’re just not going to cut bean carry out much more than what it is already, where it’s basically at pipeline levels as it is. And they’re going to slow play the corn demand going forward. That’s the history of what we’ve seen in the past from the USDA, and they’re going to let price do its own rationing. So, I think that’s part of the issue.”