Corn prices likely to turn bullish over Jul-Aug before pulling back

After an extensive pullback post-Labor Day holiday, China's corn prices are expected to kick off a key cycle in the third quarter with focuses on supply-demand balances, weather conditions, and policy support, and the prices will likely remain strong over July-August before turning soft in September, based on Mysteel's analysis.

Since the Labour Day holiday, the domestic corn market has experienced a notable downward correction. Spot prices have generally fallen by Yuan 10-30/tonne week-on-week, while futures prices have also weakened, fueling bearish market sentiment.

The post-holiday price weakness stemmed from four major bearish factors converging. First, the old-crop inventory-clearing pressure has been released intensively. With the arrival of new wheat in North China, traders are strongly motivated to clear space for new crop, leading to ample short-term corn supply. The volume of corn arriving at deep-processing plant gates has risen notably, directly capping upward price movement.

Second, wheat substitution is set to strengthen. With Hubei's new wheat now on the market and its price generally lower than corn, feed mills are prioritizing wheat purchases to reduce costs. This diversion of corn's rigid demand is also dragging corn prices lower.

Third, weak feed demand is weighing on corn's rigid consumption. Given the ongoing decline in hog inventories and poor livestock breeding margins, feed mills are prone to take hand-to-mouth strategies. Meanwhile, operating rates in the corn starch and alcohol sectors stay low, leaving demand without solid support.

Fourth, policy expectations are exacerbating market concerns. The anticipated release of aged rice inventory has heightened worries about rice substituting for corn and supplementing grain supplies. This has intensified bearish sentiment in the corn market, with futures prices leading the decline and spot prices following.

Looking ahead to the third quarter, the corn market will enter a critical phase, with prices driven by four core factors including supply-demand dynamics, weather, and policy. The corn prices are likely to show strength in July-August followed by pressure in September.

Tightening supply will become the key support for bullish corn prices in Q3. During July-August, domestic corn will enter its old-crop/new-crop transition, as old-crop inventories are largely depleted and new crops are not yet available, resulting in tight supply. At the same time, key growing areas in Northeast and North China will be at critical stages of corn development.

Rising risks of extreme weather, such as high temperatures and drought, will fuel concerns over new-crop yields, potentially triggering price speculation and driving the market higher. Entering September, new crops from North China will begin to hit the market, with fresh corn supplies flooding in. Supply pressure will release rapidly, pulling prices down from their highs. However, the extent of the decline will be constrained by new-crop output and the pace of procurement.

Policy and substitute factors will continue to influence price volatility. On the policy front, large-scale releases of aged rice would cap upward price momentum. For substitutes, wheat prices directly affect corn substitution: if wheat prices remain low, substitution demand will strengthen and limit corn's upside; conversely, this would benefit corn. Meanwhile, the volume and price of imported grains reaching Chinese ports will also have indirect effects on domestic corn prices.

In summary, the Q3 2026 corn market presents both opportunities and challenges. Supported by tight supply, recovering demand, and weather speculation, prices are expected to trend higher during July-August. Affected by the exert of new crops in September, prices will retreat from their highs.