Porto Alegre, August 15, 2023 – The 2023 US crop started with an important climate change from a La Nina to a neutral climate and heading to the beginning of an El Nino. This climate transition generally brings uncertainty to mathematical climate models and generates a divergence of expectations. And that is what happened this season. A planting in great anticipation, with a cut in the rains in June, but a resumption of rains in July and August. A small heat wave in July hit crops at an important stage for yield. However, none of these conditions has been sufficient, so far, to cause a crop of high and surprising numbers, but there are no heavy losses either. Some decline from the initial estimate is normal, because, due to the size of the area, there is always a problem in some regions. In this August report, USDA brought a more adjusted view, with a field survey, and cut the expected yield, but maintaining production at the level of the second-largest crop in US history.
The biggest US corn crop occurred during a strong El Nino, perhaps one of the biggest in fifty years, namely in 2016. So, to point out that El Nino will drive the US crop to failure is not a valid statement. Perhaps, for this reason, USDA initially projected a record yield for 2023, that is, 181.5 bushels/acre, above the 2021 record of 177 bushels/acre. In July, USDA adjusted this estimate to 177.5 bushels/acre, based on events seen in June, and now in August it has adjusted the expected yields to 175.1 bushels/acre.
The market was expecting 175.4 bushels/acre, and we can say that the number came in line with that. The number, however, is far from being bullish or reflecting possible support at the US harvest because production is now estimated at 383.8 mln tons – simply the second-largest harvest in history. With the cut in exports for the 22/23 cycle, old crop stocks rose to 37 mln tons. For the new crop, stocks jump to 56 mln tons. This is the fundamentally bearish number and that can still take the December expiration to USD 4.30/bushel.
The harvest is not yet defined, and this will not be the last production number. USDA only closes production data in January. The crops are in the graining phase, some starting this process, with a portion entering the maturation phase. Therefore, in September the harvest must start, but until then the weather can still somehow affect the final yield. The rains were very good in the first half of August, which improved crop conditions. However, we now have two weeks of a new heat wave hitting the Midwest and with more limited rainfall. Perhaps this affects later corn crops and soybeans, but a large part of corn already has its yield defined.
In September, the survey will absorb the information from August, and we do not believe there will be major downward changes in expected yields, but there may be some upward correction due to the weather in August. Meanwhile, private surveys will do their job to bring the estimate closer to reality.
Another important number, but which barely changes the fundamental picture, began with the increases in Ukrainian production to 27.50 mln tons, and in Brazil to 135 mln tons. The surprise was the production growth for Ukraine, even though its export projection remained unchanged at 19.5 mln tons.
Other surprises came from the cut of almost 4 mln tons in the European crop and the cut in the Chinese crop. The European crop was doing well, with the harvest starting next month, but more isolated problems in France may have slightly reduced the estimate. Europe continues with imports projected at 24 mln tons in the 23/24 season.
China went through the monsoon cycle with excessive rainfall in the central region of the country, which is also important for the national context of production. If there was any loss, it surely stemmed from heavy rains and crop failures, as the northeast of the country has perfect crops. The cut was from 280 to 277 mln tons but with no change in the projection of imports by China, which were at 23 mln tons and already seemed high.
In general, therefore, the USDA report was bearish despite the cut in US production given the existence of strong stocks for 23/24. The focus now is on the weather until the harvest, private production assessments until the September report, and the competition for exports between the United States and Brazil.
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