Porto Alegre, March 12, 2024 – With no major surprise, the USDA report of corn was released last week. Always with many expectations and trends fueled by the market, the USDA report is breaking some visions of supply chaos or production losses beyond what is already predicted. Prices on the CBOT made their downward curve projecting the South American crop and are now focusing on the 2024 US crop and the climate trend going forward. Despite a report without any upward bias, a slightly more tense closing of the week was noted on Exchange. The possibility of the market starting to reposition the price curve for the second half of the year, anticipating climate situations for the United States and, later, for the next South American crop, seems a little more evident at this moment.
The supply and demand framework is comfortable. In another USDA report, the bullish factor for the current business year was not present. The US supply and demand picture of corn did not change, remaining identical to that of February. There were no additional factors for upward or downward changes in stocks, although US exports showed some improvement.
Prices on the CBOT just above USD 4.00/bushel almost return to the historical average. Premiums in the Gulf of Mexico fell sharply from April to September, demonstrating that there is internal pressure to leave the 2023 crop still in warehouses. The US stock of 55 mln tons has been fully recovered, and there is not much more room in domestic demand to absorb large volumes. So, exports need to do the work of disposing of this surplus to make room for the 2025 crop that will arrive in September.
With this March report maintaining balance, the market will focus its attention on the 28th, when USDA will release the planting intention for the 2024 US crop. The bias for acreage is already known, cut in corn area and increase in soybeans. The open question is how much area will be cut in corn and increased in soybeans. The consensus number appears to be 3 mln acres for each side.
However, after last Friday’s report, the market offered different signals. With the South American crop practically projected and the prices of the soybean complex, in turn, having reached a certain “bottom” for the moment, market agents began to observe the 24/25 curve. At this point, there is the entire US crop to develop ahead and with the traditional movements supported by the weather. Could the US summer in the Midwest bring any variables such as heat and little rain to the west of the region, similar to 2022? This is what begins to emerge in climate forecasts.
However, more interesting than that was the movement of soymeal on the CBOT at the end of the week. Even on the eve of a full crop in Argentina, meal jumped by USD 7/short ton after the report without any obvious sign of this movement. There is no doubt, however, that the market started to use price “bottoms” on the eve of the current Argentine harvest to position itself for the medium and long term. Well, why position for the long term? Firstly due to the US weather market, which poses a risk to production despite the increase in planted area. So, the market starts to think longer and protect itself in advance from the new La Nina already designed by NOAA and becoming more evident every week. The transition from the current El Nino to La Nina again creates a symptom of a search for protection by global soymeal consumers, which ends up generating an upward movement in the middle of the 2023 Argentine harvest. In other words, the movement has nothing to do with the current crop but with the future curve in a history that is always drastic for soymeal due to Argentina.
How does this affect corn? The recent rally of soybeans due to the early rise in meal ends up increasing the soybean/corn exchange ratio, more favorable to soybean planting. Could on March 28 the intention report bring an area cut to less than 91 mln acres and soybeans an increase above 88 mln acres? In the current exchange ratio, yes.
No major changes to Europe. Ukraine with an export forecast of 24.5 mln tons, but with increased flow problems, mainly via Poland. Besides, this is on the eve of a record wheat crop, and corn prices plummeted to USD 172 FOB last week. Europe, with a reduction in the corn import forecast this season, to 22 mln against 23 mln tons previously. More wheat available is the main point.
China with a very stable situation, without import needs and with sharp internal lows. Prices in China today are the lowest since 2020.
In Argentina, the harvest is beginning regionally. The good rainfall in February will guarantee a crop of 56/57 mln tons and an export potential of 35/40 mln tons this year. Of course, Ukrainian, US and now Argentine selling pressure greatly limits any additional export demand for Brazilian corn. The world market is served, and there will only be room for price hikes on the CBOT and for exporters in case of a much smaller area than expected in the USA and/or serious weather problems in the local crop in July and August, as the planting should proceed normally. The sharp decline in the dollar in the international market helps commodities and is a point to be evaluated as well.
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