In 2012, a production loss of almost 100 mln tons brought international corn prices to their highest levels in history. They were back in the first half of 2022 after the United States reaped the second-largest crop in its history. The war in Ukraine brought an additional component to prices. Now, USDA adjusts the numbers for the 2022 crop, which is almost 30 mln tons lower than the 2021 crop and generates low stocks from the projection of a sharp demand cut. The record high premiums in the Gulf of Mexico begin to suggest that the US market has started to “protect” domestic supply, inhibiting international demand for local corn. The point is that this international demand is now moving to the few existing alternatives, that is, Brazil and Argentina.
The bias of this USDA October report was the cut in the stocks for the 21/22 business year. This condition was determined in the September quarterly stock report, which put the existing stocks as of August 30 at 35 mln tons, against 38.9 mln tons expected by USDA. Demand was higher than expected by USDA at the end of last business year and generated lower-than-expected ending stocks.
Domestic and export demands contributed to this profile of transition of stocks to the new business year. 35 mln tons would not be a serious problem in terms of carryover stocks if the 2022 crop were full. The point is that USDA has again cut the productivity of the current crop to 171.9 bushels/acre and dropped the national crop to 352.9 mln tons. The 2022 crop is 30 mln tons lower than the 2021 crop, and this point worsens the 22/23 picture. USDA again needed to make an effort to cut the projected demand for this 22/23 season.
At this point, two factors are essential:
– The US economy at full employment entering a situation completely different than the current one for 2023, causing a cut in demand far beyond what is expected;
– Exports lose strength over the next few weeks and promote internal “leftovers” of corn greater than expected.
The market seems to have noticed that the most practical option is to contain US exports. And, the big factor of contention, at this moment, started to be the premiums in the Gulf of Mexico. The premiums set a new record last week. October hit 180 cents against Chicago, and November/December 145 cents. Not even in 2012 had premiums risen like that. This means that US corn is currently the most expensive in the world, costing between USD 315 and 340/ton FOB depending on the month of shipment. Meanwhile, Brazilian and Argentine corn cost USD 305 and 310 FOB, respectively.
The result of this premium movement is the demand shifting to South America. Therefore, we notice an aggressive resumption of global buyers in the Brazilian market for shipments from November to March 2023, at least. We also notice the start of business for the 2023 second crop. With the United States option unfeasible, the market is trying to supply itself through the suppliers that still exist. Argentina is already practically out of new exports until April, as export registrations have already reached 36 mln tons, the maximum quota determined by the government. So, global demand ends up reverting to Brazil, given that we still have supply and logistics for shipments until January.
Besides the USDA adjustment data on carryover stocks and its effort to contain the projected demand, new figures emerged from Europe, also as expected. USDA cut Europe’s production to 86.2 mln tons and raised imports of 21/22 and 22/23 to 20 mln tons. According to the European market, purchases from Europe are already above this target of 20 mln tons.
Another expected but optimistic change came from Ukraine, with exports rising from 13 to 15.50 mln tons this season. The war was accelerated last week due to the event on the bridge over Crimea, which prompted Russia to increase bombings across Ukraine. As the week closed, activity seemed to settle down, and Russia suggested space for gas supplies to Europe via Turkey, still without a sign that the Ukrainian export corridor will be closed in November.
In the Chinese picture, only a change with the cut in imports for the last business year from 23 to 22 mln tons. We repeat, China is reaping a record crop of 274 mln tons, has not imported corn, and will not participate in the Brazilian market, not even switching supposed shipments from the United States to Brazil.
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