COFCO corn purchases break historic pattern

The past three days have seen large purchases of US corn by COFCO with volumes already totaling 1.92 million tons.

This is relatively aggressive buying and nearly double the volume rumored in the Chinese market which also indicates the opacity of COFCO’s activities even in the Chinese trade.

On the Dalian Exchange, the corn market has essentially not reacted to these sales and the market is flat over the past month. The entire corn curve on the DCE ended up mildly higher as the expectation is that these purchases will go into government reserves.

Plotting DCE corn futures against USDA export sales to China, large purchases historically happened as prices were making new highs. But this round of purchases happened when prices were off the highs and relatively steady.

One possible explanation for these purchases is that the government is looking to stockpile corn with the expectation that corn production will drop this year due to the increasing subsidies and support for soybean planting in China.

Officially, Chinese corn tariff rate quotas remain at 7.2 million tons, with 60%, or 4.3 million tons, allocated to state-owned enterprises. However, in recent years COFCO has bypassed this system leading to SOEs controlling an even larger portion of corn imports.