One of the more interesting stories to start the year is China’s demand for lower foreign material volumes in soybean shipments. Is that why they’re turning away U.S. corn too?
As readers of GrainCents know, China is awash in corn right now. It’s also poised to ramp up ethanol production ahead of its E-10 mandate set for 2020. While the ethanol story is largely noise right now, it will be a major factor of corn and ethanol demand in the years ahead.
But right now, China has been turning away from U.S. corn shipment to… Ukraine.
In the Black Sea, Ukrainian corn prices hit a six-month high thanks to rising demand from China and the EU.
Platts reported Tuesday that China’s shift to Ukrainian (in addition to its rising demand for non-GMO corn) has been fueled by two things: Quality concerns and difficult paperwork around U.S. corn.
This appears to be a short-term story.
Traders are expecting that with the U.S. dollar sliding that U.S. corn will become more competitive compared to Ukrainian corn. But it is interesting timing to see this story out of Platts and nowhere else.
One must wonder if we’re gearing up for a similar change in USDA policy on corn shipments and foreign materials.
If so, it will present a short-term bottleneck issue.
However, greater quality assurance should be valuable to customers over the long-term and help the U.S. compete on more than just price.
Ukrainian corn hits 6-month high as China switches away from US cargoes
London (Platts)–23 Jan 2018 945 am EST/1445 GMT
Ukrainian corn struck a six-month high Monday, reaching $172.50/mt according to S&P Global Platts data, as exports to China and the EU continued to grow, the former — a big buyer of non-GMO corn — recently buying a number of cargoes from Ukraine, switching away from a US consignment.
“China traded around 10 [Panamax] vessels from Ukraine,” a source said, in light of quality concerns and paperwork difficulty with the original cargoes to be sourced from the US.
Many market participants are expecting China to import around 2 million mt of corn from Ukraine; the most recent USDA WASDE report estimates that China will import 3 million mt of corn.
China’s growing demand for corn relates to its 2020 E10 Ethanol Mandate (gasoline containing 10% ethanol), already in effect in 11 provinces and cities as well as decreasing acreage amid a firmer focus on soy plantations.
Similarly, the EU has been importing more, particularly from Ukraine after the approval of 1 million mt of duty-free import licenses amid lower levels of production year on year.
While Brazilian corn is very popular in the EU, Ukrainian corn has made a return due to freight rates tightening the arb from Brazil to the EU.
Indeed, a smaller Ukrainian crop year on year, farmers withholding supplies, and difficult internal logistics has also supported Ukrainian corn, pushing it past the range of $160-165/mt seen between October and mid-December.
However, with prices rising practically daily in Ukraine, some traders expect competition from Brazil and Argentina to reemerge and US competitiveness to grow.