China's domestic corn market has experienced a downward price trend for over three months, pressured by a fundamental shift toward looser supply conditions. However, recent resurgence in global food security concerns has once again captured market attention, driving significant gains in grain-related equities and agricultural commodities worldwide. Despite the domestic supply-demand balance leaning toward oversupply, new crop corn futures on the Dalian exchange are trading at low valuation levels, which has enabled a substantial price rebound in response to these broader agricultural sector themes.
This year marks the second instance where global food security narratives have propelled Dalian corn futures higher. This analysis examines the transmission mechanisms and limitations of global food crises on China's corn market through two primary channels: geopolitical conflict and anomalous weather patterns.
A US financial institution's report reignites global food security worries
On August 15th, JPMorgan, a major US financial institution, released a report titled "Food Security Is National Security: A Compounding Storm," authored by senior global economist Nora Szentivanyi and her London-based team. The report identifies 2027 as the potential flashpoint for the next global food crisis, attributing the risk to five interconnected factors: War, Weather, Warehousing, Water, and Waste. While a single risk factor could trigger food price volatility, the confluence of multiple risks amplifies the crisis impact significantly.
These five elements are not isolated; they interact and reinforce one another. Conflict disrupts critical shipping lanes, extreme weather undermines agricultural output, inadequate storage capacity diminishes buffer stocks, water scarcity constrains irrigation, and food waste further reduces effective supply. Szentivanyi emphasized that fertilizer represents the most vulnerable link in this chain. Disruptions in the Strait of Hormuz, combined with an impending super El Ni帽o event, are intensifying pressures on both fertilizer and food prices. With agricultural input transportation compromised, global crop prices may not yet have reached their peak. She suggested that energy supply shocks this year could double the impact of the super El Ni帽o phenomenon on food prices, with the report projecting food price inflation to reach 5% by the first half of 2027, contributing an additional 0.6 percentage points to overall inflation.
Assessing the impact of Middle East conflict and El Ni帽o on China's corn market
Applying the report's war and weather drivers to China's domestic corn market reveals several key transmission pathways.
Geopolitical conflict: Two fronts simultaneously constrict global grain trade routes
Geopolitical disruptions to grain supply chains are concentrated on two major fronts. In the Black Sea region, Russia and Ukraine collectively account for over a quarter of global wheat exports. Since August, both sides have intensified attacks on commercial vessels and ports, with at least five grain ships targeted near the Russian Black Sea ports of Novorossiysk and Tuapse. A large-scale Ukrainian drone assault on Novorossiysk forced the suspension of three major grain terminals (NZT, NKHP, KSK), which have a combined annual throughput capacity of approximately 24.6 million tonnes, representing about 75% of Russia's Black Sea grain transshipment capacity. The head of Russia's Grain Union anticipates August grain exports may fall short of 2 million tonnes, a dramatic decline from 5.7 million tonnes in the same period last year. Meanwhile, Ukraine's grain exports have plummeted by 76% year-on-year since August, as most shipping companies have suspended port calls at Odesa due to frequent attacks.
The second and more critical front involves the Strait of Hormuz, a vital chokepoint for global energy and fertilizer trade. This waterway handles approximately 26% of global seaborne oil trade, 20% of liquefied natural gas trade, and about 33% of global fertilizer trade. Any disruption would trigger a cascade along the "energy-fertilizer-planting costs-production-food prices" chain: higher oil and gas prices inflate fertilizer costs, which compress planting profitability, ultimately leading to reduced output and elevated grain prices. Geopolitical tensions in this region remain unresolved without substantive de-escalation.
Although Iran is not a major corn-producing nation, the conflict impacts international corn prices through both cost and demand channels. On the cost side, a potential blockade would spike fertilizer costs, raising corn cultivation expenses and lowering production expectations, thus pushing prices upward. On the demand side, higher energy prices would boost fuel ethanol production and prices, increasing corn consumption for ethanol and further supporting corn prices. Western nations maintain strategic petroleum reserves but lack equivalent fertilizer buffer stocks, fundamentally altering the food crisis dynamic: it is no longer simply about poor harvests but rather conflict severing agricultural input supply chains first, forcing passive production declines afterward.
For China's domestic corn market, the implications span costs, distribution, demand, and imports. In terms of fertilizers, Middle East tensions have lifted international urea prices, but China's self-sufficiency in urea production, coupled with policy constraints and export quotas, has prevented these external price increases from transmitting domestically, limiting the impact on this year's spring planting. Current increases in corn cultivation costs primarily stem from higher land rental expenses and expectations of reduced yields. Regarding energy and freight, corn flows from northern production areas to southern consumption centers, with logistics costs representing approximately 10% of the total price. Higher oil prices raise transportation costs, and coal used for drying new-crop corn in the northeast also becomes more expensive, elevating overall distribution costs. On the demand side, China's fuel ethanol industry operates under the "no competition with grain for food" policy, with domestic design capacity for corn-based fuel ethanol at only about 6 million tonnes. This represents a relatively low share of corn consumption, and the growing adoption of electric vehicles further suppresses demand for corn-based fuel ethanol. Import-wise, China's corn imports are constrained by a 7.2 million tonne quota, with policies tightened since 2024. Current annual corn imports are projected at only 3 million tonnes, roughly 1% of total demand. Even with attractive US corn import margins, no incremental volumes have materialized, and no US corn export orders to China have been recorded this year. Consequently, the linkage between international corn prices and China's domestic market remains weak due to import limitations. When the US and Israel launched joint military strikes on Iran in late February, the Dalian corn futures contract rallied for only about a week before reverting to its own fundamentals, with cumulative gains peaking at approximately 3.5%. This reaction suggests the market traded the geopolitical development more as a sentiment-driven theme rather than a fundamental shift in expectations.
Weather patterns: A historically powerful El Ni帽o on the horizon
Meteorological agencies project a high probability of a historically strong El Ni帽o event by late 2026. The agricultural impacts of El Ni帽o typically manifest six to twelve months after the oceanic phenomenon peaks, meaning production pressures could persist throughout 2027 even after the climatic event's apex. India and Southeast Asia may face drought conditions affecting wheat and rice output, while South America could experience flooding that damages soybean and corn crops, with palm oil supplies also under threat. NOAA has elevated the probability of a "very strong El Ni帽o" in autumn-winter 2026 to above 90%. China's National Climate Center forecasts that sea surface temperatures in the central-eastern equatorial Pacific will continue rising, peaking around November-December this year, potentially forming a super El Ni帽o event that could become the strongest on record.
El Ni帽o events typically elevate global average temperatures and trigger climate anomalies across Pacific-rim regions, bringing heavy rainfall and flooding to some areas while causing high temperatures, limited precipitation, and severe drought in others. This summer, China has experienced abnormal climate patterns reflecting typical El Ni帽o development stage influences, with the eastern region showing two rain belts in the north and south, characterized by widespread, intense, and overlapping rainstorms causing compound disasters, alongside active and powerful typhoons with prolonged wind and rain impacts.
Field research indicates this year's corn crop conditions are inferior to last year's. In major production areas, the northeast has suffered multiple adversities: early-season low temperatures reduced accumulated heat units and slowed crop development compared to last year, some regions experienced drought, and multiple typhoons brought intense rainfall. Liaoning province, in particular, faces significant production reduction expectations of approximately 20%-30%, with grain quality also lower than last year. However, since last year was a bumper harvest year with both high output and quality in the northeast, this year's crop, while below last year's levels, is expected to be roughly in line with or slightly above normal years' yields. Combined with expectations of increased corn planting area, national corn production for 2026 is projected to decrease only slightly year-on-year, still potentially exceeding normal-year output. With about one month remaining before large-scale northeast corn harvesting and marketing begins, production estimates retain uncertainty, though current market sentiment toward new-crop corn output remains relatively optimistic.
In mid-to-late April, trading around the "strongest El Ni帽o in 140 years" theme heated up, with the Dalian corn futures main contract trading on this narrative for approximately 3-5 trading sessions, reaching cumulative gains of about 2%. That rally pushed current-year corn prices to their annual high before the market entered a three-plus-month downtrend, again underscoring the pattern of phase-specific theme trading. As new-crop corn has entered its late growth stage, despite varying disaster impacts across regions, overall production expectations remain relatively positive, and weather-related production concerns have substantially diminished. The current resurgence of El Ni帽o-related trading in Dalian corn futures is likely to remain theme-driven, with fundamental impacts expected primarily through substitute wheat. This El Ni帽o event could affect winter wheat sowing and growth this year. During the sowing period, northern wheat regions (North China and Huang-Huai) may face elevated risks of below-normal precipitation and insufficient soil moisture, potentially delaying sowing and reducing emergence rates, directly impacting basic seedling counts. Southern wheat regions (Jianghuai and Yangtze River basin) face increased probability of excessive moisture, where waterlogged soils could prevent sowing machinery operations and increase seed rot risks. During the growth phase, warmer winter temperatures under El Ni帽o conditions may cause excessive vegetative growth in winter wheat, with insufficient cold-hardening. If a late spring cold snap occurs in spring 2027, these overgrown wheat fields could face widespread frost damage and production reduction expectations. Thus, during spring and summer 2027, attention must focus on risks including northern spring drought, late spring cold spells, and prolonged rainfall/flooding in the Yangtze River basin. Winter wheat could experience persistent El Ni帽o lag effects during critical growth stages including green-up, jointing, heading, and grain filling, creating a multi-stage risk chain: "sowing obstruction, winter overgrowth, spring frost damage, and grain-filling drought."
Through impacts on this year's winter wheat, the market anticipates effects on feed substitution expectations when new wheat enters the market next June, consequently influencing corn substitution supply expectations for the entire 2026/27 marketing year and providing fundamental support. Additionally, El Ni帽o's lagged agricultural impacts could affect 2027 corn planting and growth expectations, though implications for this year's corn crop appear limited.
Loose supply expectations persist; low valuations combined with thematic drivers fuel strong rebound
At the current stage, corn market supply remains relatively ample, with multiple factors exerting pressure: ongoing inventory destocking, wheat substitution, high imported grain inventories, and the beginning of new-crop corn market entries. Markets are concerned that the current trade inventory sell-off cycle could seamlessly overlap with the new-crop corn concentration marketing window, compounded by expectations of extended wheat substitution periods. These three supply pressures amplify the loosening supply outlook, contributing to the significant price declines observed. While Beigang corn inventories are declining at a pace similar to last year, Guangdong port total grain inventories remain elevated, exceeding 3 million tonnes, with domestic corn accounting for only about 3%. Given abundant substitute supplies, downstream buyers show relatively low purchasing interest in domestic corn, providing weak price support. With new-crop corn beginning to enter the market in North China, the loose supply situation persists.
Trade channels still hold stocks awaiting sale, with relatively high earlier warehousing costs and ample downstream alternative grain sources contributing to low acceptance of high-priced corn. Overall distribution pace remains slow, and destocking intentions are relatively high. Trade entities show significantly lower willingness to purchase and stockpile new-crop corn compared to last year, reinforcing expectations of weaker prices during the new-crop marketing season. Regarding wheat substitution, although the wheat price support policy was announced in mid-August, given the substantial proportion of substandard, low-priced grain that fails to meet storage criteria this year, the policy's impact on wheat feed substitution is expected to be limited. However, corn sentiment received some boost. In previous years, wheat substitution would exit the feed market after new-crop corn marketing commenced, but this year, due to the large share of low-quality, low-priced wheat, expectations extend feed substitution into the fourth quarter.
Regarding policy grain, aged rice continues to be offered at auctions, but transaction rates have fallen sharply, with the latest weekly rate dropping to 2%. As corn prices decline, aged rice's comparative price advantage diminishes, and pessimistic market sentiment reduces participation enthusiasm. However, since policy grain releases primarily aim to stabilize market price fluctuations, the likelihood of price reductions to stimulate transactions remains low during corn price weakness, suggesting limited medium-term thematic drivers from policy grain auctions. New-crop corn production reduction expectations have recently intensified, with multiple typhoons and rainfall events expected to reduce output year-on-year. While the new marketing year's supply-demand balance is projected to lean looser year-on-year, cultivation costs have increased by 200-300 yuan/tonne, providing relatively strong cost-side support. Futures prices have previously tested the lower range of planting costs, increasing long-side value from a valuation perspective. However, given the weak fundamental reality, the market had not strengthened or front-run this positioning. This week, driven by El Ni帽o themes and geopolitical conflicts, the corn market's low valuations combined with agricultural sector thematic drivers attracted increased capital participation, producing a substantial rebound in futures prices. In the short-to-medium term, corn market fundamentals will continue reflecting loose supply expectations. Futures performance will depend on market sentiment toward thematic trading; should thematic trading enthusiasm fade, combined with the upcoming seasonal new-crop corn marketing period, short-term futures performance could face headwinds. However, from a medium-to-long-term valuation perspective, upside potential remains.
Conclusions and outlook
In summary, amid escalating global food crisis expectations, China's corn market demonstrates considerable resilience through its institutional "firewalls," including high self-sufficiency rates, import quota controls, policy constraints on fuel ethanol demand, and domestic urea supply independence. These mechanisms provide resistance to cost transmission and external price linkages, though complete insulation remains impossible. Middle East conflicts elevate energy and freight costs, while El Ni帽o may indirectly alter next year's corn feed substitution landscape by affecting winter wheat planting and growth, both transmitting to the domestic corn supply-demand balance gradually. Meanwhile, market sentiment and capital preferences often shift ahead of fundamental changes, with theme-driven price volatility repeatedly demonstrated on the futures board. The tug-of-war between the corn market's "weak reality" and "strong thematic expectations" will persist. Particularly at low valuation levels, should global food security anxieties resurface, geopolitical tensions recur, or El Ni帽o lag effects materialize, market enthusiasm for trading supply risks could reignite. In the short-to-medium term, caution is warranted regarding pullback pressure from the combination of concentrated new-crop supply and fading thematic momentum. Yet from a medium-to-long-term valuation perspective, unresolved global food crisis concerns and rising domestic cultivation costs lay the groundwork for future Dalian corn futures appreciation, with market sensitivity to such drivers unlikely to diminish quickly.