Porto Alegre, April 19, 2021 – The international corn market is now focused on the unpredictable Chinese demand and the performance of the US crop. China registered an economic growth of 18.3% in the first quarter of 2021 compared to the same period in 2020, so it cannot be considered, under any hypothesis, that there is a decline in the local demand, even with African swine fever (ASF) strengthening some cases. Therefore, new corn imports may appear at any time. The new US crop will be planted from April 20 in the Midwest. There are drought situations on the west side and normal conditions in other regions. At first, it does not seem there will be any problem with this year’s planting, which may even start earlier than normal.
The international price framework is quite strong at the moment. There was a beginning of pressure from wheat early this month, due to the entry of the US crop and good climate in Russia, but it was reversed with new highs in corn prices in China and colder climate in the US Midwest last week. What really surprised last week was Chicago’s attention to weather conditions in Brazil. With the lack of rain in Brazil, the market started to conjecture about production losses, hypothesis that partly supported prices on the Chicago Board of Trade (CBOT). This is a new fact for price determinants in Chicago.
Brazil exports 30/35 million tons a year. The absence of this volume or part of it ends up generating pressure on other exporters, the United States, Argentina and Ukraine. Maybe even on the wheat market. This year’s difficulties stem precisely from the fact that China remains an uncertain importer in terms of quantity and flow. We do not know whether this buyer momentum will continue from October, when the new Chinese crop comes in. It is definitely no longer possible to believe any number of corn stocks from local information and/or other sources. It seems clearer to believe that China has no carryover stocks and is willing to buy what it can as soon as import prices align with its domestic market and vice versa. The problem is that we are talking about the world’s second top consumer of corn, and with only four major suppliers to meet this potential and new Chinese demand.
In such an environment, losses in the Brazilian production, which might lower exports from 35 to 25 million tons, for example, would make the other three exporters need to compensate for this gap, maybe compensated with wheat purchases. And all indicators suggest Brazil will not have 35 million tons to sell abroad this year. As a result, prices on the CBOT last week showed some residual high on account of Brazil, even exceeding USD 6.00/bushel, the highest price since 2013.
The other point to be evaluated is the framework for the planting of the US crop in 2021. So far only Texas has started planting, along with part of Nebraska. Planting in the Midwest must start on the 20th. Soil moisture conditions are far below normal in the west and north sides of the Midwest. The other regions, on the other hand, are very close to normal.
The development of corn planting and its completion on May 30 is the important short-term point for the US crop. On May 10, USDA will release the first supply and demand report for the 21/22 crop. It will take into account the area from the planting intention report and its potential productivity adjustment, which we believe will hit 176 bushels per acre. From then on, the projection for the US demand in 21/22 becomes a great unknown. There is no reason to point to a decline in local domestic demand, especially in a phase of economic recovery. The big question is really in the continuity of exports at high levels. At this point, China is again the biggest doubt. Would USDA maintain China’s projected high imports for 2022, so maintaining high US exports? This is the cornerstone for determining stocks for the next business year and, consequently, for the price curve.
Agência SAFRAS Latam
Copyright 2021 – Grupo CMA