Todd's Take

We can't say it didn't cross our minds. In Thursday's Before the Bell Grains comments DTN Senior Analyst Dana Mantini turned in to editors shortly before 8 a.m. CST, he wrote this, " Although China is reported to have bought 12.3 million metric tons (484 million bushels) of U.S. corn, some 80% of that corn has yet to ship."

Yes, there was -- and is -- a risk that China could cancel corn sales, and that is what USDA announced Thursday morning: Private exporters reported cancellations of export sales of 380,000 metric tons (14.96 million bushels) of corn for delivery to China during the 2021-22 marketing year. March corn ended the day down 5 3/4 cents at $6.16 3/4, but given the bearish possibilities, the loss wasn't catastrophic. Prices are still above their 20-day average at $6.12.

Before Thursday's cancellation, USDA's weekly export sales report showed China had bought 490 million bushels (mb) of corn from the U.S., nearly 137 mb of which had already shipped. The bulk of China's corn purchases were announced in May 2021 when spot corn prices were trading between roughly $6 and $7.75 a bushel, the highest levels in eight years.

At the time, Brazil's second corn crop was experiencing drought, and drought was a concern in the northwestern U.S. Corn Belt. It was understandable for China to make new-crop purchases, even at those lofty levels. By the end of May, China had purchased 423 mb of U.S. corn for 2021-22.

In the months that followed, China was largely quiet in the U.S. corn market, only buying another 67 mb as of Jan. 27, 2022. The U.S. successfully harvested 15.115 billion bushels (bb) of corn in the fall of 2021, its second-largest corn crop on record. Another big corn exporter also had a good crop in 2021. USDA estimates Ukraine harvested 42.0 million metric tons (mmt) or 1.65 bb of corn, up 39% from the previous year and enough to export 1.32 bb, making Ukraine the fourth-largest exporter of corn in the world.

Just how much corn China actually needs is difficult to answer. According to USDA, China's corn production is expected to fall short of demand by 844 mb in 2021-22. A report from USDA's ag attache in Beijing, dated Jan. 28, 2022, narrowed the estimated deficit to 726 mb.

But this is the same USDA that says China has 8.28 bb of surplus corn laying around and can't explain why China bought 845 mb of corn from the U.S. in 2020-21. Chinese businesses have been on holiday this week, but the most recent quote of May corn from China's Dalian exchange translated to $11.06 a bushel, the highest spot price on the Dalian in seven months.

After Thursday's cancellation, China still has 338 mb of U.S. corn sales not yet shipped. However, with corn prices above $11 a bushel in China, it does not seem likely that China is apt to make a lot more cancellations. The country remains an aggressive consumer of corn.

There is a risk China could cancel some more U.S. sales, only to be replaced by purchases from Ukraine. That particular option would have some political spite involved, and it is interesting that Thursday's cancellation announcement came as the Winter Olympics are getting ready to begin in Beijing without an official U.S. delegation in attendance.

One last possible consideration is also my favorite, as it seems the most practical. Every chart watcher of March corn noticed Monday's technical reversal after prices made a new contract high by 2 cents Monday but failed to close higher on the day. The weekly chart shows a large potential double-top forming shortly after CFTC just reported a weekly increase of 50,960 net longs held by speculators as of Jan. 25. It's quite possible China gave the market an intentional shot of bearish news to see if it could break prices lower.

If that is true, then it is clear that China is still an interested buyer of corn but doesn't like all the competition corn buyers have had lately.

The main bullish concern for corn prices the next several months will be crop conditions for Brazil's second corn crop. The crop is on track to be planted earlier than last year's drought-impaired crop, but La Nina conditions are still threatening dry weather in southern Brazil and in Argentina.

For growers still holding on to last year's corn production, I continue to say there is no shame in accepting corn prices at or above $6, no matter what happens from here. Monday's potential top is worth some concern, but if China's attempt to hit the market could only take March corn down a nickel, I have to suspect there may still be higher prices ahead.

Best wishes in a highly uncertain situation.

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Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Todd Hultman can be found at Todd.Hultman@dtn.com

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