Corn prices on a record high as China’s demand surges

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on Jan 27, 2021
  • Corn futures are trading at a high of $543, the highest level since July 2013.
  • China is committed to buying a record ethanol amount of 200 million gallons in this year's first half.
  • The Middle Kingdom has bought 1.36 million tonnes of US corn, the highest amount since July 2020.

Corn prices are on the rise for the third consecutive day. China, which is a key consumer of the commodity, has recorded increased demand by buying the largest amount since July 2020. The country is also committed to buying a record amount of ethanol in this year’s first half. On Wednesday, corn futures were trading at a high of around $543, which its highest level since July 2013.

corn prices

Rising demand for corn in China

Corn prices are reacting to the increased demand from China. On Tuesday, the US Department of Agriculture indicated that the Middle Kingdom bought 1.36 million tonnes of the commodity from US private exporters over the past weekend. This is the largest amount since July 2020.

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In the department’s recent report on export sales, the undelivered sales and exports of the produce to the Asian country for the 2020/21 marketing year stood at 11.7687 million tonnes. The figure is in comparison to the 60,000 tonnes recorded last year as the aggregate for 2019/20.

The high demand from China is in line with the estimates included in USDA’s January report. In its WASDE report, the department predicted that Chinese corn imports for the 2020/21 would be about 17.5 million tonnes. The figure represented an increase of 9.9 million from the numbers recorded in the 2019/20 period. It would be an even further increase from the 4.48 million tonnes imported in 2018/19.  

China’s strong demand for corn has been observable since the previous year. The Economic Research Service, which is a department within the USDA, has stated that since the beginning of 2020, the country has imported about 10 million tonnes of the produce. The amount exceeds the 7.2 million tonnes allowed by the existing tariff rate quota.

In addition to the purchased corn, the Middle Kingdom is committed to make a record purchase of ethanol. While on an investor call on Tuesday, Ray Young, Archer Daniels Midland’s CFO indicated that the country had purchased about 200 million gallons of the biofuel. The amount is for 2021’s first half. This would be the largest ever annual purchase by China. These news have triggered a positive sentiment that has pushed corn prices higher.   

Corn prices technical outlook

On a daily chart, corn futures are trading above the 20 and 50-day exponential moving averages. This is an indication that the prices are likely to continue with the current uptrend. The formation of a hammer candlestick, followed by an inverted hammer, further confirmed the bullish reversal. Since mid-December 2020, corn prices have been on an upward momentum.

As at 13th January 2021, the commodity’s price was at the highest level since July 2013. At this point, the prices had entered the overbought zone as the RSI approached 90. Subsequently, the prices dropped as investors took profit. However, the fundamentals still pointed to a bullish setup. It was just a matter of time before the bulls regained control of the market. From this perspective, I am of the opinion that corn prices will continue to rise in the near term.

Currently, the corn futures are trading at around $543, surpassing the record level it set in mid-January. `The next level to watch out for will be the psychological price of $550. It is likely to find support around $520, which was last week’s support level.  

corn prices

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