CBOT to corn hits all-time highs of 2012


     Porto Alegre, April 26, 2022 – Historic price highs occur when there are difficult global supply scenarios, most of which are caused by sharp production losses in key export countries. All historical price peaks for the last forty years stemmed from supply problems, that is, production losses. Therefore, the historic high for corn prices on the CBOT was USD 8.00/bushel in 2012, and for soybeans USD 16.75/bushel on the monthly average. In 2022, the South American production losses are the big support for soybeans. For corn, the absence of Ukraine is a partial issue in this picture of firm global prices. However, high oil prices along with acreage cuts in the United States have weighed more heavily on this price composition.

     In 2012, the US crop registered the sharpest decline in production in history, with nearly 100 mln tons or a third of the estimated production. Planting conditions were excellent, with good pace and completion before technical deadlines. Large yield projections made by local universities, as the planting was carried out earlier, established another factor of strong pressure on prices on the CBOT. From June 20, rains decreased, temperatures jumped, and the projections of super productivity did not come true. Contrary to what is pointed out overseas, 2012 was not a year of La Nina for the US crop, but of neutral conditions.

     In 2022, the environment for the US crop is tense. There is a global appeal for a full crop, with good production to meet steady international demand. The end of a pandemic with effects on demand, a significant drought in South America, a war involving major corn and wheat suppliers, and oil with prices above USD 100/barrel make this year much more complex than any other recently and, above all, much more worrying than 2012. We can say that Brazil’s participation in this international corn environment is crucial, as it will also have to use its second crop to compensate for international supply losses generated by Ukraine.

     Prices, then, assume a panic posture in the US pre-planting. Anxiety leads the market to look for premature planting indicators, which historically never existed, or climatic factors that must not interfere now in the 2022 crop development. The known and seasonal weather market started sooner than usual because of this market’s anxiety about seeing a normal US crop. Some points, therefore, will remain as points of attention:

     – World demand has not shown symptoms of decline yet, despite high commodity prices;

     – High interest rates and a strong dollar are not a good combination for commodity prices;

     – Ukraine had its first data for the 2022 crop released, showing it will be a discreet participant in exports in 22/23, in a crop that is only 10% planted with corn;

     – Argentina is harvesting its crop of 48/50 mln tons at the moment and will collaborate with 25/35 mln tons in the global supply below the 40 mln in 2021;

     – China must maintain corn purchases in the United States and perhaps in Brazil until the entry of its 2022 crop in November. Without Ukraine’s corn, China will end up having to complete demand from these alternative sources;

     – The Brazilian second crop was placed in the international market as a speculative variable to justify the CBOT highs last week. Undoubtedly, the rains are decreasing in the Midwest of the country at the moment, and this is a great point of attention, as it can harm the volumes to be offered by Brazil in the international market;

     – The US planting has a real start this week. The west and south of the Midwest must quickly boost their planting, and the cold of the north is not a serious problem for the beginning of work. The planting must be 50/60% complete until May 10. Note that in 2019 most of the crop was planted after May 15, due to rains, and even then the crop was normal.

     – We are not verifying negative variables in the climate projections to make planting unfeasible within the normal deadlines until June. There is indeed concern over the western Midwest due to low soil moisture reserves;

     – Weekly reports on planting and crop conditions, from now on, will be either reassuring or stressing about future prices;

     – On May 12, USDA will release the first 22/23 supply and demand report, which must be bullish for corn due to the projection of planted area x productivity. USDA will have to sharpen the yield estimate to find higher production and stocks for 22/23. 177 bushels per acre set a record in 2021. Could USDA put yield projections above 180 bushels to boost the 2022 forecast? Without this, the report tends to be fully bullish;

     – On June 30, the first report on the effective planted area will be published. Could the area with corn come a little larger than projected on March 31 and soybeans a little shorter? Most certainly. Notice that we are in a completely abnormal year, and comparisons with past events are not necessarily valid;

     – The weather in the US summer will define the market for the second half of the year, regardless of global demand or the situation in Ukraine. Now, we can point out that a Brazilian second crop with problems can bring more global difficulties than Ukraine with losses of 20 mln tons this year.

     With this environment, we must say that we will have 120 tense days ahead until the definition of this 2022 US crop. It is for this reason that prices reached the highs of 2012 last week, the market began to look for protection against this uncertain variable, the weather. Besides, the 22/23 supply and demand report 22/23 on May 12 is expected to be bullish for corn, while it may be fully bearish for soybeans. We must also reflect that, given the composition of global factors this year, US production losses in 2022 could easily put prices at record highs, which could drive to consumption rationing. In this case, could the USD 10/bushel be reached? In a normal US crop situation, with excellent yield and above 375 mln tons, could prices settle in from September onward? Perhaps sending prices below USD 6/bushel again? This is the context of the international market.

     Agência SAFRAS Latam

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