China’s Growing Impact On The Corn Industry
In an unprecedented move, China rejected a quarter of U.S. corn imports this year after discovering the corn violated its ban on specific genetically modified foods. China found 545,000 metric tons of U.S. corn unacceptable after finding it contained MIR162, an insect resistant strain of the grain (The Wall Street Journal). Although MIR162 has been approved for consumption in the U.S., Japan, and Europe, China’s agriculture ministry has stated they are still evaluating the safety of the corn, and are in the final stages of testing to determine whether the food is safe for commercial distribution (The Wall Street Journal).
The Effect On Markets
The effect of China blocking U.S. corn shipments has been immediate, causing a drop in U.S. corn futures. Anxieties that China will continue the ban on future corn shipments have caused a loss of confidence in the future stability of the corn markets. These developments have also had some effect on American Congress, having been said to bolster members of the Senate to introduce a bill that would remove a current mandate on the amount of ethanol that is required to be blended with gasoline (Agriculture). Current USDA forecasts predict the use of corn for ethanol may be lowered to 250 million bushels (Bloomberg).
The graph below, created in ZEMA, displays the relationship between the CBT futures daily settlement price on ethanol versus corn for the previous two years. Although the graph displays pricing for corn as slightly volatile for the past two years, the greatest decline came this fall between July and September. Ethanol displays the same trend. The data indicates a high correlation between the two, calculated at 0.78.
The combination of China blocking U.S. corn shipments and the debate on the ethanol blending mandate have caused corn futures for December delivery to drop 1.1%, closing at $4.3325 a bushel after briefly touching the lowest price, $4.325, for a most-active contract since August 31, 2010 (Bloomberg). All told, corn futures have fallen 38% this year- a record annual slump.
The graph below, created in ZEMA, displays the monthly percentage change of the CBT futures daily settlement prices for corn for March 2014 contract. The bars represent the monthly percentage change, and the line represents the March 2014 contract price in USC/bu. As indicated by the graph, the monthly percentage change for futures daily settlement prices has mainly been negative, displaying the fall in corn futures prices that occurred this year.
China’s Future Corn Market
There is some speculation that genetically modified corn might not be the only reason behind the rejection. China’s corn harvest this year had an increase of 5%, totaling to 215 million tons, compared to the harvest last year (The Wall Street Journal). This has traders concerned there may be a slowdown in demand for corn imports in China, as domestic supply may increase in the coming years.
As the futures market evolves in light of these developments, current data accessibility, management, and analysis will become more vital, and a proper system will be required to manage data and analysis needs. ZEMA captures data from multiple markets to power analysis of the changes in the continually evolving marketplace. ZEMA’s powerful visualization capabilities enable users to recognize patterns, such as those in the above example, with ease.