Key View: The market is trapped in a weak, range-bound downtrend.

As the selling window for old-crop corn narrows and financial pressure from holding inventories mounts, traders are becoming increasingly willing to liquidate positions. Additionally, both wheat and corn markets face issues with invoice standardisation, forcing some traders to sell their stockpiles at a loss. This coincides with a bumper wheat harvest during a period of weak seasonal demand, creating a loose supply-demand balance. Spot prices are falling, narrowing the wheat-corn spread. Meanwhile, rising soymeal spot prices are enhancing wheat's cost advantage as a feed substitute. The combination of increased supply pressure and sluggish demand has pushed corn futures and spot prices into a weak, range-bound decline since mid-to-late July.

Entering August, traders holding significant old-crop inventories lack the conviction to support prices. With planted area for the new crop expected to rise, a new production record is likely unless extreme rainfall disrupts the harvest. The long-term trend of hog capacity reduction, driven by both policy and profitability, is firmly in place. Broiler capacity appears to have peaked and is declining, and while layer hen capacity is growing, its share of total feed consumption is relatively small. Overall market sentiment towards feed demand in the second half of the year is bearish, especially with substitution from wheat, imported corn, and other grains. Traders hold a pessimistic outlook for corn prices this year. Furthermore, holding old-crop corn ties up capital and incurs storage costs. Consequently, even though spot prices have fallen below their breakeven or storage costs, the willingness to hold out for higher prices is diminishing, and the pace of forced liquidation is likely to accelerate.

On the demand side, hog and broiler enterprises are operating at a loss, making them reluctant to build or replenish feed inventories. They are actively seeking more economical energy feed sources. In the deep-processing sector, summer is the traditional maintenance season, with utilisation rates running weak, particularly for alcohol processors which have seen a sharp decline since July. With the new crop season approaching, procurement and restocking intentions among processors are currently very low.

Overall, the sales window for old-crop grain held by traders is shrinking, increasing the likelihood of passive selling. This, combined with the ongoing release of policy grain stocks, increased substitution from domestic wheat and imported sorghum and barley, and weak downstream demand, points to a period of ample supply in the short-term market.

In the futures market, the C2609 contract has traded at a small discount to spot since July, reflecting the market's pessimistic outlook for Q3. However, higher planting costs this year provide underlying support for medium-to-long-term corn prices. The short-term outlook is for weak, range-bound futures and spot prices, with the market waiting for this wave of supply pressure to pass before considering a medium-to-long-term entry point.

Futures: Weak, range-bound downtrend.

Supply from Midstream: Bearish. Increased willingness to sell from traders is boosting supply.

Supply from Origin: Neutral. Increased downstream willingness to sell, increasing shipment volumes.

Imports: Neutral. Import volumes are increasing month-on-month but are relatively small compared to domestic production, limiting their overall impact.

Downstream Demand: Neutral. Feed and deep-processing enterprises are cautious in restocking, but feed inventories are at low levels, creating some necessity for restocking.

Substitutes: Bearish. Both domestic substitutes and imported grains hold a competitive advantage in the feed sector.

Sentiment: Bearish. Market sentiment is pessimistic due to substitution pressure and weak demand.

Costs: Bullish. Rising land rents and production input costs are increasing the cost floor.

Basis: Bullish. Near-month futures contracts are trading at a slight discount to spot.

Market Review

As the selling window for the old crop narrows, traders are increasing shipments to free up capital and storage space. Deep-processing enterprises are in their summer maintenance season, significantly reducing corn consumption. Weak wheat prices are increasing its attractiveness as a feed substitute. This confluence of ample supply and weak demand has led to a weak, range-bound trend for spot prices. As of July 27, the flat price for second-grade corn at northern ports was 2320 yuan/ton, down 20 yuan/ton from the previous week. The main futures contract, C2609, tracked spot prices lower.

Domestic Supply and Demand

New Crop Area and Costs Increase Year-on-Year

This month's supply and demand forecast for the 2026/27 Chinese corn crop remains unchanged from last month. Recent weather in major producing areas has been generally favourable for corn growth. However, continued scattered rainfall in most producing areas may lead to waterlogging in low-lying fields, which requires monitoring. The rise in corn prices has driven up land rents and input costs (e.g., fertiliser), increasing overall planting costs by 10%-15% compared to last year. This higher cost base supports the medium-to-long-term price floor for corn.

Northern Port Inventories Decline Month-on-Month

Since July, both arrivals and shipments at northern ports have been weak. Bearish sentiment and cautious downstream buying have reduced market activity. As weekly arrivals have been lower than shipments, the market continues its destocking cycle. For the week ending July 17, arrivals at the four major northern ports were 195,000 tonnes, down 19,000 tonnes week-on-week. Shipments were 266,000 tonnes, down 140,000 tonnes week-on-week. Total inventory at these ports was 2.25 million tonnes, a decrease of 70,000 tonnes from the previous week but an increase of 50,000 tonnes year-on-year. Shipment pace is below last year's level, though inventory is lower than recent averages. Following historical patterns, the market typically enters a phase of digesting channel and port inventories after May, suggesting a declining trend for port stocks ahead.

Arrivals at Northeast Deep-Processing Plants Remain Low

Arrivals at deep-processing enterprises in Northeast China have been bottoming out since July. Year-on-year comparisons are less meaningful due to differing statistical scopes. Historically, June to August represents the annual low point for arrivals, coinciding with the maintenance season. During this period, plants supplement external procurement with internal stock draws. Procurement and restocking activities typically increase from late September onwards as corn from Central and Southern China enters the harvest season.

Guangdong Port Domestic Corn Stocks Continue to Fall

Since July, prices at southern ports have followed the weak trend of northern ports. Weak buying interest in southern consuming areas, combined with the arrival of new wheat and high inventories of imported grains like barley (which are at historical highs and offer substitution value), is suppressing demand for domestic corn. Domestic corn shipments are declining, market activity is quiet, and the shipping profit margin between northern and southern ports remains negative. As of July 26, the price for dry corn at southern ports was 2450 yuan/ton, down 10 yuan/ton from the previous week. The northern-to-southern port shipping profit was -20 yuan/ton, narrowing by 10 yuan/ton. As of July 17, domestic corn inventory at southern ports was 196,000 tonnes, down 50,000 tonnes week-on-week and 700,000 tonnes year-on-year.

Imported Corn Volumes Increase Month-on-Month

Customs data shows China imported 129,500 tonnes of corn in June 2026, up 116.67% month-on-month but down 17.10% year-on-year, primarily from Russia and Argentina. Total corn imports for the 2025/26 marketing year reached 2.72 million tonnes, up 62% year-on-year. Expected imports for the full 2025/2026 year are 6 million tonnes. If the annual tariff-rate quota is filled, approximately 3 million tonnes of imports remain for the rest of the year, a relatively small absolute volume. Since Q2, the profit margin for importing in-quota South American corn has been significant. Import arrivals are expected to increase quarter-on-quarter in Q3, a trend reflected in the rapid build-up of import inventories since July.

Regarding substitute grains, domestic imports of barley this year are the second highest since 2015, with port inventories of grains at historically high levels for this period. However, sorghum and barley are mainly used for brewing rather than feed, unless they offer a significant price advantage. While barley can theoretically substitute for feed corn based on its nutritional profile, the scale of substitution is limited and not widely adopted. Overall, while imported corn and related grains hold an advantage and can influence the market's supply-demand balance, their impact is more psychological than substantial at this point.

Domestic Supply and Demand

Hog Farms Suffer Heavy Losses, Feed Inventories Continue to Decline

In mid-to-late July, hog prices fell again, widening losses for pig farmers. Broiler prices saw a small rebound but remain unprofitable. In contrast, layer hen producers are enjoying high profits during the seasonal peak demand period. However, as hog and broiler feed consumption makes up the vast majority of total feed demand, the overall cautious approach to restocking by feed mills and livestock farms persists, relying on existing inventories to meet immediate needs. This has continued the destocking trend seen in Q2. As of July 24, average feed inventory days for feed mills were 25.77 days, down 0.1 days from the previous week and 5 days less year-on-year, placing them at a multi-year low for this period.

Wheat Substitution Advantage is Clear

It's a bumper wheat harvest year. Due to invoicing issues, trading for upstream and grassroots traders is more complex, forcing some who have purchased grain to sell at a loss. Combined with the seasonal low demand period for flour mills, the market is loose, and spot prices are correcting. This has narrowed the wheat-corn spread. Furthermore, with soymeal prices rising, wheat offers a protein advantage over corn in feed rations. Since mid-to-late July, wheat's substitution advantage has expanded, leading to increased usage. On July 9, 1 million tonnes of aged paddy were auctioned, with 460,000 tonnes sold. Last week, Sinograin held 6 corn procurement auctions, planning to buy 22,210 tonnes, with a final transaction volume of 19,682 tonnes (88.62% success rate, up 72.28% week-on-week). They also held 19 corn sales auctions, planning to sell 161,776 tonnes, with only 32,209 tonnes sold (19.91% success rate, down 29.10% week-on-week). For the 2025/26 crop year, a cumulative 6.71 million tonnes of imported corn have been auctioned, with 5.89 million tonnes sold. The continuous release of aged paddy, imported corn, and wheat provides a diverse source of raw materials for downstream corn users but also adds to the supply pressure on corn. The sharp decline in the sales success rate last week highlights the current oversupply situation in the market.

Starch and Alcohol Processor Operating Rates Decline

As of July 22, the operating rates for starch and alcohol processors, two major downstream corn deep-processing products, were 55.66% and 36.8%, respectively. These were down 5 percentage points and 3 percentage points week-on-week, but up 5 percentage points and down 1.5 percentage points year-on-year. Profit margins for alcohol processing have been improving month-on-month since July due to lower raw material costs. However, starch processors have seen their margins decline as downstream product prices have fallen significantly. This led to a larger week-on-week drop in starch plant operating rates last week. Additionally, the summer maintenance season is a contributing factor to the sequential decline in operating rates for both sectors.

Deep-Processing Enterprise Corn Inventories Continue Destocking Trend

Since July, midstream traders' willingness to hold firm on corn spot prices has softened, increasing market supply. However, downstream enterprises are not keen on restocking, preferring to purchase only at low prices and using their existing stocks to adjust. Consequently, inventories at deep-processing enterprises have been on a downward trend since July. According to Mysteel Agricultural data, as of the week ending July 24, total corn inventory at 96 major deep-processing enterprises across China was 3.78 million tonnes, down 70,000 tonnes week-on-week and 500,000 tonnes year-on-year. Market confidence has not yet fully recovered, and deep-processing enterprises are cautious in their procurement, gradually consuming existing stocks. This trend is expected to continue. Due to a brief recovery in processing margins for starch enterprises in early-to-mid July, the decline in operating rates during the maintenance season was slower than in previous years, causing starch inventories to rise. As of July 22, total corn starch inventory was 1.236 million tonnes, up 30,000 tonnes from the previous week.

Basis and Spread Analysis

Near-Month Basis Rebounds, Starch-Corn Spread Within Reasonable Range

Since July, high channel inventories and competition from substitutes have created a generally pessimistic outlook for Q3 spot prices, particularly as demand lacks any significant bright spots. This has caused the discount for near-month futures contracts to widen. Overall, if most of the bearish factors are already priced in and there is no widespread distress selling by traders, stabilising spot prices could provide support for the futures market. Corn futures and spot prices have been declining since July, dragged down by accumulating corn starch inventories and weak seasonal demand. The fall in corn prices has been smaller than that of corn starch, causing the starch-corn spread to narrow, but it remains within a reasonable historical range.