Porto Alegre, August 5th, 2024 – Are prices on the CBOT too low? Certainly not, it is just that the market, or part of it, seems to have lost its recent memory of what a normal price is, either high or low, with the pandemic episode. The return of prices to levels of USD 4.00/bushel or below had already been signaled in this publication and, therefore, there can be no surprises with the events that are occurring. We are simply returning
to the normal average of prices on the CBOT and perhaps moving toward the minimum reference price in the United States, which is USD 3.70/bushel. The situation is complicated for less competitive markets or those with other interferences, such as South America, which has exchange rate variations that increase production costs and do not always compensate for it through prices. The focus now is on the USDA report, on the 12th, which must adjust the planted area and projected productivity. The weather has completely reversed for this month of August and now shows very favorable conditions for crops in the pod-filling stage.
July is always a tense month for the Chicago Board of Trade for corn, as it involves a critical phase for the potential of US production, which is pollination and silking. This phase, however, went very well this year, with mild temperatures and regular rainfall. In the second half of July, the weather maps came out with a strong climate forecast of high temperatures and more discreet rainfall for the entire Midwest. Although the phase for defining potential productivity had already passed, there was a possibility that this intense heat would affect the weight and ear-filling this August.
Last week, however, the weather maps completely reversed, despite the week still being hot and without much rain. The rains were concentrated in the heart of the Midwest, that is, Illinois and Iowa, and this had the greatest impact on the market. The week’s high temperatures left some questions to be discussed about the USDA’s productivity projection and private assessments. However, the maps started to predict excellent rains throughout the Midwest and milder temperatures for August, which seems perfect for crops.
The markets that were about to get bullish due to the heat wave returned to lows, with prices on the CBOT reaching a new low in the December contract. At the end of the week, with the worse employment data in the United States, the chance of a sharp cut in interest rates or a bias toward an interest rate cut in September became more evident. The market movement at the end of the week seems to have pointed to a change in the attitude of funds, perhaps flowing from equity assets to commodities assets, which led corn, wheat and soybean prices to rally on Friday. This recovery seems to be clearly a reflection of this financial flow within the commodities market and not of fundamental factors.
Fundamental factors, now with a perfect weather forecast for August, indicate that attention should be paid to the USDA report on the 12th. This report aims to update productivity for the US crop based on a field survey, and no longer solely on the bias of the department’s analyst. However, this report will have an additional factor, namely a reassessment of the planted area. Generally, the adjustments are small in comparison to the June area report, but in a sensitive market with prices already below USD 4.00/bushel, any information can weigh on the short-term movement.
The harvest will begin in September. From then on, the flow of sales of US corn, that is, weekly sales, will weigh on prices. Brazilian corn is unable to be very competitive at low prices. The devalued currency will help to rebalance this account, however, very high premiums in Brazil may drive part of the corn demand to the USA. Could good export demand in the USA from September onward rebalance prices and prevent sharper lows? Perhaps.
Safras & Mercado released the planting intention for the 24/25 Argentine crop. Initially, there was a downward correction in the 23/24 crop due to the effects of leafhopper on crops in the center-north of the country, to 47 mln tons, against the 51.5 mln tons previously expected. This effect of the leafhopper outbreak also began to affect decisions about the planting of the 24/25 season. Producers will reduce the area to be planted in the next crop by 13%, and a large part of this area will be converted into soybeans. The production potential, in a year in which La Niña is expected to be confirmed, is 51.5 mln tons. The potential is greater than in 2024 due to the deep cuts made in this year’s crop. This reflects in Argentine export potential for next year, which should not exceed 35 mln tons.
In the second half of the year, with the downward adjustments in production, export premiums rose significantly, showing that Argentina may have reached its limit in exports. Demand would then have to be shifted to the United States or Brazil from now on, and perhaps Ukraine.
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