Porto Alegre, May 17, 2022 – The USDA May report has an additional factor of attention as it is the first indication of supply and demand for the new crop. This year, this tension on the report is greater given the tight picture for 21/22 stocks and the uncertainty of the size of the Ukrainian crop, as well as its participation in the global export environment. Few surprises emerged from this report. Basically, the cut in the current business year’s export forecast, even with China having bought large volumes in April/May, and the cuts in wheat production and stocks. The strong delay in the planting ended up preventing USDA from raising its productivity projection beyond the 2021 record, and now the focus on the weather remains crucial in the price environment.
The US supply and demand report pointed to stability in ending stocks for this 21/22 business year. USDA slightly increased the demand for ethanol, but cut the forecast in the demand for feedstuff, perhaps due to the situation of the advance of Avian Influenza in the country. Small adjustments that are common and cannot be seen as surprises. The only point to highlight is that China made strong purchases of US corn in April, a part from the old crop and another from the new, but even so USDA maintained its export projection at 63.5 mln tons for this year. So, there is enough US corn to supply the local market and still increase exports from the current business year through September, without global supply risks.
The projected US acreage of 89.5 mln acres generated an area to be reaped, discounting silage, of 81.7 mln acres. From there, the productivity projection would be the point to determine the potential of this US 2022 crop. There was the possibility that USDA could exercise its productivity projection above 177 bushels per acre, a record set in 2021 even with weather problems. The number was calibrated to 2022 through the 2021 record of 177 bushels/acre. With this, the projection for production is relatively low, at 367 mln tons.
The US planting reached only 22% last week, far below the 67% planted in the same period last year. So, it seems that the productivity alignment, if you use the technical criteria, could be below 177 bushels. As we have already seen late plantings point to good yields, we can say that if not for this delay, the USDA projection would come above 180 bushels/acre. Planting is advancing strongly this week but it should reach 40/45%, still far behind the 80% planted in the year-ago comparative period. Even last year, the planting went through June 7, which suggests that 2022 will also see the planting be finished in the first week of June. Good rains and good weather in much of the Midwest, only in the northern part with slightly excessive rain in planting locations such as Minnesota. For the time being, besides the delay, we do not see great difficulties for the planting to close until early June.
The other possibilities for adjustments in the supply framework were in domestic demand and exports. USDA cut the demand forecast for feedstuff for the 22/23 season by 7 mln tons relative to 21/22. So, It is surprising that there is production growth in the meat sector, and the only problem that may be only isolated and short-lived is the incidence of Avian Influenza in parts of the country. Even so, without the option of “cheap” wheat to replace corn, it seems that the cut was exaggerated and aimed to soften the impact of the cut in the ending stocks for 22/23. It also cut the projection for exports, followed by a projected cut in imports by China. Without Ukraine and China, would the demand fall to the point of inhibiting US purchases? Could South America increase its exports if US sales decrease?
The fact is that with the cut of 7 mln for feedstuff cuts and 2.5 mln for exports, USDA has signaled a smaller cut in 2023 ending stocks. With normal demand and exports, ending stocks could drop to 27/28 mln tons, a situation that may still occur over the next business year.
One of the pieces of information that sounded like a counterpoint to the projection of a cut in US exports was the Ukrainian scenario. Ukraine’s government had projected 23 mln tons of production, a level that would suggest exports of 17/18 mln tons in 22/23. USDA pointed to 19.5 mln tons and only 9 mln tons of exports for the next business year. Ukraine will fail to reach 30 mln tons and only export 9 mln, which will naturally affect the international flow of corn with a greater demand to the Americas. Basically, USDA seems to have sent a signal not to count on the Ukrainian crop next year.
Even with wheat being very expensive, USDA cut European corn demand, imports, and production. A smaller market for 22/23, which will still need better evaluations in the coming months as with wheat so expensive it seems difficult to foresee cuts in the corn demand. Of course, without Ukrainian corn, these demand movements may need to be adjusted in the medium term. The price could be the signal for this adjustment.
Finally, China has a crop projection of 271 mln tons, somewhat conservative since planting is advancing without additional problems in the country, even in regions with social closure. USDA did not lower the Chinese demand forecast, but put imports at 18 mln tons. The most significant doubt for the last years has been the Chinese stock, however, a country that will import 23 mln tons in 21/22 does not seem to have high stocks. China remains the big unknown in the world corn market.
The global issue is now aligned for the 2022 US crop. Delayed planting is a factor that increases concern, however, it does not reflect a crop failure or discreet production. On June 30, the first report on the effective planted area will be released, and then further adjustments will be made. The level of soil moisture remains very good, in excess in some locations and balanced in others, but they are all under planting conditions. Temperatures are rising, and the producer’s fear of planting out of ideal conditions in a year of very high costs may be the major factor delaying the pace of planting so far. After planting, the market will focus on July and August, months of pollination and silking, which define the local crop.
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