Corn will meet the historic bull market

Since 2010, under the strong policy color, the grain market is not willing to be lonely, and the operating box continues to expand the space. Corn, one of the major grains with relatively weak state control, has been in a bull market for two years since the financial crisis. But this is not all. The domestic corn market is likely to usher in a historic bull market this year due to the prominent contradiction that the gap between supply and demand is increasing, inventory has dropped to a historic low, the growth potential of planting area has been basically exhausted, and import costs are high. At the same time, there may be better arbitrage opportunities between corn and strong wheat and early indica rice.

I. influencing factors

1. Subsidy leads to strong policy model

China has introduced a policy of subsidizing southern companies to buy new corn from the northeast, halving the subsidy to 35 yuan per ton. According to last year's experience, subsidy models usually give the market an additional upside of 100 won 150 yuan / ton. In addition, China Grain Reserve may get strong preferential policies for acquisition. If the stored grain is allowed to enjoy a subsidy of 35 yuan per ton on the basis of following the market, then the market will form a double subsidy model, which may double its effectiveness.

The negative side also mainly comes from policy. In the short term, policies will delay the entry of Chinese-brand enterprises into the market, restrict diversified collectors in terms of loans, transportation and inventory, and continue high-volume auctions-but these policies only increase short-term pressure and do not improve annual supply and demand. In the medium and long term, the policies that the state may implement include restrictions on the production and import of deep processing enterprises. Xinhu Futures conducted a special inspection of northeast deep processing companies in late November, which are not strongly worried about regulation because most of the deep processed products supply the food industry. The reduced production of cassava in Southeast Asia brings opportunities for corn alcohol in China. If the production is strictly restricted, it may lead to a sharp rise in the price of downstream products. According to the survey of Xinhu, some large-scale deep processing expansion projects in 2010 and 2011 will be put into production, and these projects are legal projects.

two。 Gap between production and demand

In 2009 and 2010, China auctioned about 25.7 million tons of corn and acquired more than 600,000 tons of temporary storage corn, plus two transfers of corn to disaster areas, resulting in a reduction of 25 million-25.3 million tons of state-owned corn stocks. It is estimated that the non-state-owned initial inventory increased by 3 million-5 million tons compared with the same period last year, while the total social inventory decreased by 20 million-22 million tons, that is, the gap between production and demand is 20 million-22 million tons. It is estimated that production will increase by 13 million-15 million tons, demand will increase by 3 million-5 million tons, and the gap between production and demand will be reduced by about 10 million tons. In other words, the gap between production and demand in that year will remain at 10 million-12 million tons. Of course, it is necessary to revise our expectations according to the actual development of the market. In terms of yield, some large enterprises in our survey have a great dispute over the corn yield in Heilongjiang, and think that its quantity may be significantly higher than the forecast. In addition, on the demand side, we also need to constantly monitor the new changes in the actual start-up rate and production capacity of deep processing, pig storage and import problems.

3. Inventory fell to its lowest level in 20 years

According to estimates, the inventory-to-consumption ratio of Chinese corn futures fell to about 15%, the lowest in at least 20 years, in 2009 and 2010, while it is likely to fall below 10% in 2010. In 2009 and 2010, when there was a huge gap between production and demand in the market, there was a huge national reserve inventory to fill. We will be out of stock in 2010 / 2011. In the medium term, the state delays the entry time of medium grain storage and prolongs the time of dumping, so that the level of state-owned inventory in December may be about 7 million tons lower than that of the same period in the same period of the normal year, and there is great pressure on replenishment in the medium term.

4. The potential for area growth is basically exhausted.

According to our perennial on-the-spot investigation experience in Northeast China, corn has achieved the price comparison advantage over soybean for many years (except 2008). The replanted cultivated land has been basically replanted, and the remaining replaceable cultivated land area is very small. and mostly concentrated in high latitudes or low-yield areas, the per unit yield is relatively low. In addition, the potential of newly developed cultivated land in China is relatively small, and it is mostly concentrated in areas with high remote latitudes, low accumulated temperature or poor soil quality. With the rapid development of urbanization in China, buildings, roads and other land have embezzled a large number of original cultivated land every year. In the past, the sharp rise in the price of a single variety can lead to the adjustment of cultivated land among varieties, and the prices of many agricultural products have risen sharply this year, reflecting that the total supply of cultivated land may face a historical inflection point. The gap between China's corn production and demand will continue to widen in the next few years.

5. Import costs are high

As the rigidity of world corn consumption has increased, US corn stocks have fallen to a 15-year low, and international corn prices have soared from their low in mid-2010, rising by more than 80 per cent. Although it began to decline in mid-November, the dutiable cost of importing US corn to China at the end of the year is still more than 300 yuan / ton higher than the price of China's domestic corn in the southern port. More importantly, the current CBOT corn price is based on the fact that China has not yet started large-scale imports. Although it was rumored that China and the Argentine Ministry of Agriculture had signed an agreement to import about 5.5 million tons of corn since November 2010, officials later denied this. According to our communication with multinational companies, biosafety testing procedures for imported corn usually take a long time. According to the speculation of Xinhu Futures, the gap between supply and demand of corn in China will begin to be exposed after June 2011, and the import floodgates are likely to be opened from then on.