FORT COLLINS, Colo. (Reuters) - The new marketing year is still a month-and-a-half away, but the amount of new-crop U.S. corn that has already been sold to China would make those 2020-21 exports the second-largest on record if the full volume is shipped.
The Phase 1 trade deal between Washington and Beijing essentially requires record exports of corn and other U.S. agricultural goods to China, something very much on the radar for corn with the way sales are going.
Though with U.S. corn stocks set to expand to 33-year highs, rocky U.S.-China relations and competitiveness on the global corn market, the desired impact on the U.S. market of strong corn trade with China is not guaranteed.
The U.S. Department of Agriculture confirmed on Tuesday that China purchased 1.762 million tonnes of corn for delivery in the 2020-21 marketing year beginning Sept. 1, its largest daily purchase of U.S. corn on record. That was also the fourth-biggest daily corn sale to any country since records began in 1977.
China bought 132,000 tonnes of U.S. corn on Wednesday, bringing the total known 2020-21 sales to about 3.9 million tonnes or 154 million bushels.
That is easily the most U.S. corn China has ever booked for a future marketing year, and it would represent the second-largest annual volume exported. The most U.S. corn ever shipped to China was 5.15 million tonnes or 203 million bushels in 2011-12.
Corn bulls have been citing imminent sales to China as a possible catalyst for higher prices for almost two years now. But Chicago futures prices ended lower on both Friday and Tuesday, days that featured massive Chinese purchases, as improving U.S. weather forecasts overshadowed the export news.
Given China’s relatively low import quota and historical corn shipments from the United States, the purchases may be unlikely to make a huge dent in the projected U.S. ending stocks of 2.65 billion bushels for 2020-21.
The Phase 1 deal provides extra incentive for China to buy U.S. farm goods, and that would not be the first time that government activity led to an enormous sale of U.S. corn.
Tuesday’s record sale to China was the largest daily U.S. corn sale to any country since Jan. 9, 1991, when the Soviet Union bought 3.72 million tonnes. That was one day after the Soviet Union was granted a $900 million export credit to purchase U.S. commodities, which followed a long-term grain agreement signed the previous year.
U.S. corn exports to China have not historically had a huge footprint on total agriculture trade between the two countries. Corn has not accounted for more than 5% of the total annual value of American farm goods to China in 25 years.
The maximum value of U.S. corn shipped to China in a calendar year was $1.3 billion in 2012 with an average export price of $300 per tonne. The United States exported 130,062 tonnes of corn to China in May 2020, the largest monthly volume since April 2018, and the average export price was $145.20 per tonne.
The Phase 1 deal suggests the total value of 2020 U.S. farm exports to China must reach a minimum of $36.5 billion, which would be automatically more difficult to achieve with lower prices.
The United States comfortably remains the world’s top corn exporter, but China has never occupied a large piece of those efforts. Its largest annual share of U.S. corn shipments was 13% in both 2011-12 and 2012-13, but the percentage never exceeded 6% in any other season in at least 50 years.
Large, early sales may increase the possibility of bookings being cancelled down the road. China did not make any meaningful cancellations for 2011-12 or 2012-13, the latter of which featured the fifth-largest volume of U.S. corn to the Asian country.
By the end of August 2013, China had bought 3 million tonnes of U.S. corn for shipment in 2013-14, formerly its largest total heading into a new marketing year. That amount reached nearly 5.9 million tonnes by December, but China spent the next eight months cancelling many of those sales.
U.S. exports to China in 2013-14 ended up at 2.73 million tonnes, the third-largest annual volume on record.
The 2013-14 cancellations were likely due to a variety of factors, some of which might be less applicable today. Beijing had been ramping up its grain subsidy and reserve programs, and domestic stocks were multiplying. Certain genetically modified U.S. corn varieties had come under scrutiny as well, causing additional trade disruptions.
China was also seeking to diversify its suppliers at that time, and relations with Argentina, Brazil and Ukraine were relatively new. As of January 2011, only the United States, Thailand and Peru were permitted to export corn to China.
China bought 1.45 million tonnes of U.S. corn on Dec. 20, 1994, the country’s largest-ever daily purchase prior to Tuesday. Another big sale of 550,000 tonnes came on Dec. 27 that year, but more than 600,000 tonnes was cancelled in February 1995.
In the late 1980s and early 1990s, China was the world’s No. 2 exporter of corn, though a supply shortfall in 1994 temporarily sidelined the efforts. China remained a corn exporter until about 2008, when the government introduced support prices to promote self-sufficiency.
USDA sees China importing a record 7 million tonnes or 276 million bushels of corn in 2020-21, equal to the 2019-20 estimate, and that is largely due to the expectation that China may replenish its state reserves. Imported corn is also cheaper than the domestic product.
The opinions expressed here are those of the author, a market analyst for Reuters.
Editing by Matthew Lewis