Porto Alegre, March 15, 2022 – This USDA March supply and demand report had many expectations: cut in the US stocks, cut in South American production, and revision of export data from Russia and Ukraine. The Department practically confirmed expectations for corn, brought some new doubts about Ukraine, which seems normal at the moment, but surprised in the case of wheat. The rise in wheat stocks in the United States was the surprising figure in the report, as with the war the least one would expect is the forecast for an increase in wheat exports by all other global exporters, including the United States.
This March report was surrounded by more stress than in normal years. First, because the year is not normal. Second, because USDA would need to adjust numbers for South America and US stocks due to the crop failure in Brazil, increasing ethanol demand and US exports. At the same time, the market created expectations about the data on Russia and Ukraine for wheat and corn. Ukraine closed exports of several products last week indefinitely and is evaluating how it will do with commodities such as corn and wheat. Ukraine’s southern ports remain closed and its alternative is the road exit through Eastern Europe.
USDA cut Ukraine’s export forecast from 33.5 mln tons to a potential of 27.5 mln tons. It is clear this is very superficial and imprecise data at the moment, given the war, the stoppage of ports, and unknown conditions involving transportation, silos and ports. It is important to point out that this export volume refers to the crop reaped in September/October and that will be sold in the next six months, should there be conditions. Another item is the decision to plant the 2022 crop, which starts at the end of April, and it is really not possible to know the conditions for the local planting, whether producers will still be on the farms, time for the arrival of fertilizers and seeds for planting, and work conditions. Therefore, regarding both current Ukrainian exports and the local new crop, any trend is possible.
The second point was the Russian wheat data. In this case, USDA reduced the volume of wheat exports this business year from 35 to 32 mln tons. From July, the new Russian crop arrives, and from then on the 2022/23 crop will be evaluated. But the USDA cut sounded reassuring to the international market. Wheat has even tested USD 14/bushel in recent days, and after the report, CBOT prices dropped to USD 10.60 a bushel. The three-mln-ton cut seemed to be a volume that could be offset by higher sales from Argentina, Australia, the United States and Canada, as well as Brazil. Of course, sanctions are just beginning, and there are many issues that could still affect Russian exports. The other figures on wheat concern the US stocks. The bets were on the decrease in the US stocks, but USDA brought a small increase. This fact helped to hold back expectations, tensions and prices on the CBOT.
The direct points related to corn were consolidated. Higher exports and firm domestic demand for ethanol brought US corn stocks down again to 36.6 mln tons. The good correction served to keep CBOT prices firm despite the strong accommodation of wheat. The USDA didn’t change anything, again, the China data. China has commitments between 6 and 8 mln tons to receive from Ukrainian origin. If you do not receive such purchases made, you will need to change the source of purchases. In these short-term volumes, only Argentina and the United States would have availability. At this point, in the midst of the war, there is a great expectation about China’s movement in the international corn market, given that prices have risen sharply in the last ten days in the Chinese market and may induce the local market to import. The government will try to use wheat stockpiles to contain this movement, as it does with soybeans at the moment. However, this situation could quickly worsen if Ukrainian sales do not return in the first half of the year.
Finally, the adjustments for the South American crop. Despite the Argentina market pointing to a corn crop of 48 to 51 mln tons, USDA indicated 53 mln tons, one mln below the previous estimate. In fact, the rains in the second half of February and this month of March may have helped the productivity of later crops. A better crop could help lift the release of export registrations, currently limited to 25 mln tons for 2022 by the government, which will only release an updated crop number in April.
After the USDA supply and demand report, now the focus is on the planting intention report on the 31st. Owing to the wheat and corn situation, it would not be surprising if the US producer’s planting intention in 2022 is against the market expectations of a strong increase in soybean area and cuts in corn. We can see numbers with discreet area movements between spring wheat, corn and soybeans for this year in view of the prices of the three commodities.
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