A 5x Rise In China’s Corn Deficit? – Field Notes – October 15, 2017

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A 5x Rise In China’s Corn Deficit? – Field Notes – October 15, 2017

What’s The Event?

China now estimates its corn supply deficit for 2017-18 will be 4.31Mt, a dramatic
increase from the 890kt last month. Near term, China is likely to meet the supply
shortfall with its reserves rather than imports. Longer term, the bigger question is how
serious China is regarding its E10 (10% ethanol mandate) implementation (10Mt-20Mt in
imports). This would be positive for US and South American agricultural industries
(~50% of global corn is produced in US, Brazil and Argentina).

There was a renewed surge in urea prices this week (Brazil and US up $18/t and $7/t,
respectively) due to shortages triggered via closures and delays in output from urea
units in Asia, the Middle East and North Africa. We think that the balanced market in
Q4/17 will give way to a surplus in Q1 and Q2/18 when prices are expected to come
under pressure. Beyond 2018, we think urea market fundamentals are much more
constructive.

There is now a 2/3rd chance for a La Niña during the South American growing
season (i.e., drier and hotter conditions). Conab forecasts total grain production will
be down 6% Y/Y, a slight negative for fertilizer demand.

We also discuss increasing freight rates, harvest progress in the U.S., and the October
WASDE report.