Corn futures are expected to trade within a range near current levels, with the market facing pressure from ample supply but finding support from elevated production costs.
From July to September, market supply primarily consists of last year's corn and substitute grains. Since July, planned sales of corn from state reserves have far exceeded purchases, with auction clearance rates showing a declining trend. Concurrently, the price gap between wheat and corn has narrowed to a level where wheat substitution becomes viable. Both standard and sprouted wheat now hold significant advantages for feed use. As the sales window for old-crop corn narrows and financial pressure mounts, traders' willingness to hold out for higher prices is weakening. Consequently, overall market supply has been relatively ample since July.
On the demand side, although hog prices have rebounded since July, leading to increased willingness among farmers to hold back animals for weight gain, and egg prices have risen, fostering reluctance to cull layers, the medium to long-term outlook remains one of herd reduction for both hogs and broilers. Market expectations for corn demand are pessimistic. Compounded by tight cash flow, feed enterprises continue to purchase only to meet immediate needs, leading to a continuous month-on-month decline in inventories. For deep-processing, summer is the maintenance season, resulting in generally weak and fluctuating operating rates. This is particularly pronounced for alcohol producers, where rates have fallen significantly. While processing margins have improved somewhat, the sector overall remains in a loss-making phase. With lower operating rates and persistent losses, the willingness to procure and build inventory is low, leading to a month-on-month decline in deep-processor stocks. Historically, the third quarter is a destocking season for downstream enterprises, with the pace of inventory drawdown being a key factor influencing market trends. Overall, as the sales window for traders' old-crop corn gradually shortens, the willingness for passive sales may gradually increase. Coupled with the ongoing release of policy grains in the domestic market, increased substitution by domestic wheat, imported sorghum, and barley in feed, and the entry of corn deep-processors into maintenance periods with weak demand for raw material procurement, the short-term market is exhibiting a phase of ample supply.
Looking at the medium to long term, state reserve purchases of the new corn crop primarily serve to assess and guide price expectations for the new harvest. However, under the prevailing pessimistic sentiment, market expectations for future prices remain relatively low. Currently, corn crop development is at normal levels. Barring weather uncertainties during the harvest period, this year's new crop is tentatively expected to see a good harvest. With planted area increasing year-on-year, the new corn output is anticipated to reach a record high. However, rising production costs have elevated the floor for price support.
In the futures market, the C2609 contract has largely maintained a slight discount since July, indicating market pessimism towards the Q3 outlook amid pressure from substitutes. However, increased planting costs this year provide support for medium to long-term corn prices. Additionally, strong trader resistance to low spot prices and the futures discount itself offer some support to futures prices. In the near term, the futures market may find strong support around key integer price levels, trading within a range. Medium to long-term traders could watch for opportunities if prices break below these key levels.
Futures Outlook: Range-Bound Near Bottom
Elevated channel inventories and pressure from substitutes present significant headwinds for a market rebound. However, trader reluctance to sell below cost provides some support to futures prices.
Origin Supply: Neutral
Midstream players' willingness to hold for higher prices has softened slightly, leading to increased shipments. However, they remain reluctant to sell below their acquisition costs.
Import Situation: Neutral
Import volumes have increased month-on-month but remain a small proportion of domestic production, resulting in limited impact.
Downstream Demand: Neutral
Feed and deep-processing enterprises remain cautious in building inventory, with stocks continuing to decline month-on-month. However, procurement for essential needs provides some underlying support.
Substitute Situation: Bearish
Both domestic substitutes and imported related grains hold advantages in the feed sector.
Market Sentiment: Bearish
Pressure from substitutes combined with weak demand has led to relatively pessimistic market sentiment.
Cost Factor: Bullish
Rising land rents and prices for production inputs have increased costs.
Basis: Bullish
Near-month contracts are trading at a slight discount.
Market Review
Spot prices have generally been weak and range-bound due to pressure from substitute grains, increased willingness among traders to sell, and cautious procurement by downstream enterprises. As of July 13th, the price for second-grade corn at northern ports was 2,350 yuan per tonne, down 10 yuan per tonne from the previous week. The main contract C2609, supported by a relatively wide basis compared to spot prices, has shown relative resilience, trading within a narrow range.
Domestic Supply and Demand Dynamics
The forecast for China's corn supply and demand for the 2026/27 marketing year remains unchanged from last month. Recently, most northeastern producing areas have experienced normal temperatures and adequate soil moisture, while north China has had favorable light and heat conditions, all conducive to corn growth. Future forecasts indicate scattered rainfall in most corn-producing regions, which will help replenish water for agricultural use, though low-lying farmland faces a high risk of waterlogging, requiring continued monitoring. Furthermore, rising corn prices this year have driven up land rents and costs for inputs like fertilizer, increasing planting costs by 10%-15% compared to last year. This cost increase has raised the medium to long-term floor for corn prices. Additionally, channel corn inventories this year are lower year-on-year, leading to expectations that the average Q3 corn price will be higher than last year.
Port inventories at northern ports have declined month-on-month. Early July saw a slight rebound in both arrivals and shipments at ports, primarily driven by bearish sentiment and related market dynamics leading to increased supply from midstream players and a slight recovery in trading activity. As the market enters a destocking cycle overall, but with limited willingness to significantly increase trading, port inventories have seen a small month-on-month decrease. For the week of July 3rd, arrivals at the four major northern ports were 218,000 tonnes, an increase of 59,000 tonnes from the previous week. Shipments were 418,000 tonnes, up 30,000 tonnes week-on-week. Inventory at the four northern ports stood at 2.52 million tonnes as of July 3rd, down 200,000 tonnes month-on-month and 70,000 tonnes year-on-year, gradually approaching historical averages. Seasonally, the market enters a phase of digesting channel and port inventories after May, suggesting port inventories may trend lower in the coming period.
Arrivals at deep-processing enterprises in Shandong have been fluctuating at low levels. Since June, arrivals have trended lower compared to pre-June levels. Historical data shows that June to August typically marks the annual low point for arrivals at deep-processors. This is due to it being the maintenance season and a period where enterprises, besides some external procurement, focus on drawing down existing inventories. It is not until early September, as corn from central and north China gradually enters the harvest season, that procurement and inventory building begin to increase.
Inventories of domestic corn at southern ports, such as Guangdong, have seen a slight decline. Since June, prices at southern ports have generally followed the weak, range-bound trend of northern ports. Weak procurement sentiment in southern consumption areas, coupled with the new wheat harvest and historically high inventories of imported grains like barley which offer substitution value, has suppressed demand for domestic corn. Shipments of domestic corn have decreased, and overall market activity has been subdued, with north-south port shipping margins remaining in negative territory. As of July 13th, the purchase price for dry grain at southern ports was 2,450 yuan per tonne, down 10 yuan per tonne from the previous week. The north-south port shipping margin was -30 yuan per tonne, a decrease of 10 yuan per tonne week-on-week. As of July 3rd, domestic corn inventory at southern ports was 196,000 tonnes, down 50,000 tonnes from the previous week and 700,000 tonnes year-on-year.
Corn imports have increased month-on-month. Customs data shows corn imports in May 2026 were 48,800 tonnes, down 77% month-on-month and 73% year-on-year. Cumulative imports from January to May were 870,000 tonnes, up 15% year-on-year. Measured against the full annual import quota, the absolute volume is not large. Imports for the 2025/26 marketing year are forecast at 6 million tonnes. As of the end of May, annual imports stood at 2.59 million tonnes. Even if imports continue at the maximum quota rate for the remainder of the year, it would only add another three to four million tonnes, having a limited impact on overall market supply.
Regarding related grains, domestic barley imports this year are at the second-highest level since 2015, with port grain inventories at historically high levels for this period. However, sorghum and barley are primarily used for brewing, with limited use in feed unless the price advantage is significant. From a theoretical nutritional ratio perspective for feed, barley has some substitution advantage over corn, but the margin is small, and its use for this purpose in the market is limited. Since June, inventories of imported corn at Guangdong port have shown a month-on-month increasing trend. Overall, whether considering imported corn or related grains, while they offer some advantages and influence the domestic supply-demand balance to a degree, their impact is often more psychological than substantive.
Domestic Supply and Demand Dynamics (Continued)
Losses in hog farming have narrowed, while feed inventories continue to decline month-on-month. Entering July, commercial hog prices have rebounded due to structural tightness, improving farming margins, though they remain in negative territory. Broiler prices have declined since early July due to the seasonal consumption lull and ample supply, expanding farming losses. Only layer hens, benefiting from peak seasonal demand and rising egg prices, are generating higher profits for farmers. However, in the feed sector, hog and broiler demand account for a larger share. Therefore, despite improved profitability in layers, feed enterprises and farming operations overall remain cautious in building inventory, mostly relying on existing stocks to meet essential needs. Consequently, feed inventories have continued the destocking trend from Q2. As of July 10th, feed enterprise inventory cover stood at 26.01 days, down 0.3 days month-on-month and 5 days year-on-year, at a low level for this time of year in recent years. Hog and broiler feed demand in July shows a slight month-on-month decline due to herd reduction trends, while layer feed demand shows a month-on-month increase. Overall, however, total feed demand in July is trending lower month-on-month.
Related substitutes hold clear advantages. Although there was some sprouted wheat earlier this year, the overall wheat harvest was good. Coupled with relatively weak prices for grains this year, traders' willingness to actively build inventory has been low, leading to a continuous price correction for wheat since its market entry. The wheat-corn price spread has also continuously narrowed, entering the range for feed substitution. Therefore, since June, corn has not only faced its own phase of ample supply but has also been weighed down by wheat prices.
Since July, wheat prices have stabilized, and the price spread has rebounded somewhat but remains within the substitutable range. This means wheat still holds substitution value in feed formulations. Simultaneously, the regular release of policy grains continues to cool the market. On July 9th, 1 million tonnes of aged rice were offered for auction, with 460,000 tonnes sold. On July 19th, 63,000 tonnes of imported corn were auctioned, all sold at a 100% clearance rate with an average price of 2,358 yuan per tonne. For the 25/26 crop year, cumulative offerings of imported corn reached 6.71 million tonnes, with 5.89 million tonnes sold. The ongoing release of aged rice, imported corn, and wheat ensures short-term supply and caps price upside during the traditional supply gap period.
Starch operating rates are weak and fluctuating, while alcohol operating rates have declined significantly. As of July 8th, operating rates for the two main downstream products of corn deep-processing, starch and alcohol, were 60.87% and 39.7% respectively, representing week-on-week changes of -0.22 percentage points and -3.6 percentage points. Year-on-year, they were up 10 percentage points and down 4 percentage points, respectively. From a profit perspective, since June, falling raw material prices have led to a month-on-month improvement in starch processing margins. Consequently, although operating rates have declined seasonally due to maintenance, the magnitude is less than in previous years. Alcohol operating rates have continued to decline month-on-month, primarily due to a sharp drop in crude oil prices dampening expectations for fuel ethanol demand, compounded by the seasonal maintenance period.
Processing margins for deep-processing enterprises are fluctuating with an improving trend. Corn inventories at deep-processing enterprises continue to show a destocking trend. Since June, as midstream players' willingness to support spot corn prices has softened, increasing market supply, downstream enterprises' willingness to procure and build inventory has been tepid, focusing more on low-price purchases and using existing stocks for adjustment. Therefore, deep-processor inventories have trended lower since June. Industry data shows that as of the week of July 10th, combined corn inventories at 96 major deep-processing enterprises nationwide totaled 3.92 million tonnes, down 70,000 tonnes week-on-week and 500,000 tonnes year-on-year. Currently, market confidence is not fully restored, and deep-processors remain cautious in procurement, focusing on gradually drawing down existing stocks. It is expected that deep-processor inventories will continue to decline.
Since June, the price gap between tapioca starch and corn starch has continued to widen, increasing substitution ratios. Coupled with a gradual tightening of supply, enterprise starch inventories had shown a slight declining trend. However, recently, with improved processing margins and operating rates declining more slowly during the maintenance season compared to previous years, enterprise starch inventories have seen a small rebound. As of the week of July 8th, total corn starch inventories were 1.18 million tonnes, an increase of 20,000 tonnes from the previous week.
Analysis of Basis and Price Spreads
The basis for near-month contracts has fluctuated lower, while the starch-corn spread remains within a reasonable range. Since June, pressured by high channel inventories and substitute grains, and in the absence of strong demand drivers, the market has been generally pessimistic about Q3 spot prices. Consequently, the main contract has mostly traded at a slight discount. Entering July, spot prices have remained weak and range-bound, but futures have shown resilience around key integer levels, causing the basis for the main contract to narrow slightly. Overall, with many bearish factors already priced in and no large-scale sell-off by traders, stable spot prices will provide support to futures. Since June, the price spread between corn starch and corn has largely remained within a reasonable range. In the short term, there is no strong driving force, and it is expected to trade within a range.