U.S. Corn and Sorghum Sales to China Bode Well for Exports

As of the last week in July, combined U.S. old-crop corn and sorghum commitments (accumulated exports plus outstanding sales) to China stand at 5.6 million tons for delivery in 2019/20, the highest level since 2013/14. Much sorghum has already been shipped, while most corn waits for shipment. These late-season sales bode well for China’s commitments to the United States following the Phase One agreement.

For the new-crop, corn sales to the world stand at 10.9 million tons, just shy of tripling the level a year ago and well ahead of the pace seen in recent history. For sorghum, the new crop sales stand at 1.2 million tons, the highest level in 5 years. Strong early season sales do not necessarily lead to greater total exports as numerous variables influence trade dynamics throughout the year. However, large early season sales do give a kick-start to exports in the coming year.

Aside from the Phase One agreement and despite overhanging trade tensions, the pace of new crop sales to China ostensibly reflects China’s pressing needs for competitively priced feedstuffs to help meet growing feed demand and cool down domestic prices. For China’s feed mills, fewer options for corn substitutes are available after anti-dumping and countervailing duties (AD/CVD) have been imposed on Australian barley. Barring action by China, the AD/CVD on U.S. distillers’ dried grains remains in place for another year and a half.

China does not limit sorghum imports. Corn imports, however, are subject to the tariff-rate quota (TRQ) of 7.2 million tons in a calendar year, and that has been limited by administrative measures in previous years. Based on the data by China Customs Statistics and the large sales shown in the Export Sales Report, China’s corn imports could reach the TRQ level for the first time since it joined the World Trade Organization in December 2001.

OVERVIEW FOR 2020/21

Global corn production is forecast up, as larger crops in Mozambique, Ukraine, Malawi and the United States more than offset cuts to Canada, the European Union, and Thailand. Global trade is up from last month with higher imports for the European Union. Global exports are also up on higher volumes from Ukraine, Burma, and the United States. The U.S. season-average farm price is down 25 cents to $3.10 per bushel.

OVERVIEW FOR 2019/20

Global corn production is down as a result of cuts in several African countries, including Angola, Tanzania, and Malawi. Global trade is down from last month as lower imports for the European Union more than offset small increases for several countries. Global exports are little changed as a cut to Ukraine offsets higher trade for the United States, Burma, and Serbia. The U.S. season-average farm price remains at $3.60 per bushel.

CORN PRICES

Global: Since the July WASDE, U.S. bids are down $9/ton to $162 amid favorable weather and expectations of a large crop despite record large sales to China. The other major exporters’ bids were little changed overall. Argentine and Black Sea bids were both $1/ton higher at $156 and $184, respectively, whereas Brazilian bids were unchanged at $166. U.S. bids are below those of Brazil by the greatest price differential since Brazilian bids returned to publishing in early May.

Mexico Barley Imports Hit Record

Mexico’s trade year 2019/20 (Oct – Sep) barley imports are projected at a historical high of 320,000 tons. European Union exports of barley to Mexico have been particularly strong, and higher unit values indicate that it is likely malting quality. In the past, the United States has captured about half or more of Mexico’s total import volume, but market intelligence suggests that major Mexican brewers are turning to the European Union for more favorable buying terms. U.S. producers prefer contract farming for malting barley, whereas EU barley can be purchased at auction or via spot contracts.

Research by J.P. Morgan and the Kirin Company, a large Japanese beverage maker, shows that North American beer consumption grew by 0.1 percent between 2011 and 2016. However, looking at the individual countries paints a different picture. While beer consumption in the United States was essentially flat and Canada declined, Mexico had a compound annual growth rate of 3.4 percent over the period.

The expansion of beer consumption in Mexico – and consequently production – is supported by its imports of malt as well. Malt is produced through controlled germination of barley grain. Through this process, enzymes within barley are developed and activated, turning its starches into fermentable sugars. Malt imports have been steadily growing over the last 2 decades. Imports of malt generally exceed those of barley; however, in September 2019, one of the world’s major malting companies, Malteurop, indicated it would open a new malt house adjacent to a large Heineken brewing operation in the state of Chihuahua in 2021. If barley production in Mexico stays relatively flat as it has for the past several years, expansion of domestic malting capacity could mean greater barley imports in the future.