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Published April 16, 2012, 09:55 AM

China buying US corn

When with talk of private Chinese buyers having secured upwards of 10 cargoes of old-crop corn recently, futures still found it difficult to hold onto higher prices.

When with talk of private Chinese buyers having secured upwards of 10 cargoes of old-crop corn recently, futures still found it difficult to hold onto higher prices. On April 13, this talk gave way to concerns that private buyers may be close to exhausting their import quotas. This may have been one of the driving forces to push corn futures lower. Still, this would mean that future government purchases will probably move to new-crop corn. Sinograin, the state-owned reserve-management company, has been granted sole buyer of Chinese grain and oilseeds for the price support program beginning with this summer’s grain crop.

Another negative push may have come from the release of China’s growth for February at 8.1 percent. At first, traders were comfortable with that data, but then they realized that the Chinese growth was less than the 8.3 percent that many analysts were forecasting. This caused selling across many markets. One analyst that I talked to just got back from China and said he noticed a large number of cranes operating in Shanghai, Beijing, Nanjing, Hangzhou, Ningbo and Haikou.

He mentioned that he flew over the world’s largest self-contained golf complex in the southern China province of Hainan. Upon completion, this complex is expected to have 22 golf courses. This is in a country that banned golf in the mid-1980s. The analyst attended the Southern China Feed Conference and said there were 699 companies in attendance.

Aquaculture is big in China and was part of the focus at this conference. China’s soybean meal demand for aquaculture already equates to 235 million bushels of soybeans which is about 94 percent of the U.S. ending stocks for 2011 to 2012. At this meeting, one of the government officials attending suggested that the No. 1 goal for his office was to build a livestock enterprise culture. He also said there is another potential area for growth for feed demand and that was in the production of rabbits. I did not realize this but, China is estimated to represent as much as 40 percent of the total world rabbit production.

Most likely it is the huge decline in world soybean production at 9.1 percent for the past growing season that is creating a push via price to garner more U.S. acres toward soybean production. However, high-priced corn is still pulling acres from soybeans. Soybeans will gain acres via double-cropping of hard red winter wheat and cotton. I suspect that we pretty much have a handle on Argentine and Brazilian production but Paraguay still has the door open for further revisions downward in the total South American production. Estimates are now reaching 59 million to 60 million metric tons of soybeans going to China this year.

Soybeans managed to pull off a higher weekly close basis the May by 2¾ cents while the November closed the week lower, down 19¾. Still, a key reversal at the highs thus far may be an indication that we have reached a resting point for now. After all, soybeans are holding record high fund open interest to the long side.

On a side note, funds were aggressive sellers of hog futures on April 13. There is no fundamental news event that was noted but I would suspect that hogs performance on April 5 when cattle futures were up sharply caused longs some concern. Also there is a short seasonal for cattle futures to gain on hogs.

Martin of Ag & Investment Services Inc. in Webster City, Iowa, can be reached at (800) 527-0051, e-mail ag_invst@wmtel.net. This publication is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances as an offer to sell or a solicitation to buy or trade any commodities or securities herein named. Futures and optioning involves substantial risk of loss and may not be suitable for everyone.

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