China’s move to cancel US corn purchases leaves Asian traders in split

China’s decision to cancel some purchases of US corn has triggered mixed reactions among market participants, with some citing cheaper Brazilian corn as the preferred alternative while others blamed US logistics for the move.

The US Department of Agriculture released a private exporter announcement April 24 that showed 327,000 mt of US corn previously sold to China for delivery during the 2022-23 marketing year had been canceled.

In a separate report USDA said that 913,813 mt of corn was inspected during the week ended April 20, down 26% from the week-ago volume. Total inspections for the current marketing year have now reached 22.360 million mt, 36% below the year-ago volume.

The news pushed global corn prices lower and left market participants in Asia with unanswered questions.

Overnight, old crop and most actively traded July (N) futures on the Chicago Board of Trade fell 7.75 cents/bu to settle at 607.5 cents/bu while Sep (U) futures fell 2 cents/bu to 550.75 cents/bu, narrowing the inverse to 56.75 cents/bu on April 24.

According to some market participants, the falling premiums for Brazilian corn for July and August shipments drove Chinese state-owned buyers to switch purchases from the US to Brazil.

A surprise move?

The move by Chinese buyers to cancel some US corn purchases did not entirely catch Asian traders by surprise.

“Economically, it was just a matter of time to see the Chinese cancelling given where the US [market] is versus the price of Brazil corn,” said a Singapore-based trader.

The cancellation could also be due to the switching of optional origins after declaring US as the origin at first. “I think it could be optional sales that the sellers made, so when it makes sense for them to switch [due to price], they will do so,” said another trader.

Meanwhile, in the US, market participants held an alternative view of China’s cancellation owing to the logistics.

“… the cancellation of the six cargoes of corn to China was really about freeing up freight to accommodate soybean switches from Argentina to US origin. Nonetheless, most took it as negative input,” said a US-based grains trader.

The cancelled US corn volumes will have to find a new home, with Asia remaining an unlikely destination as regional demand remains fulfilled. South Korea has completed corn demand coverage up to August shipments from South America; Taiwan’s next position will be for July shipments; while Japan has completed June shipments from US and July shipment will likely be purchased from Brazil and Argentina, except for some inelastic demand for US corn.

Source: S&P Global

Please refer to the following link to access the original news report: https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/agriculture/042523-chinas-move-to-cancel-us-corn-purchases-leaves-asian-traders-in-split

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