Demand for ethanol and wheat support corn on the CBOT

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     Porto Alegre, January 24, 2022 – The rise in fuel prices in the US market in January kept the demand for ethanol accelerated and, consequently, corn crush at good levels. Besides, a better movement of corn exports began to be visible because of the risk of production losses in Argentina. The risk of conflict in Ukraine brought support moves for wheat last week, helping corn to regain levels above USD 6.00/bushel.

     Corn prices on the CBOT reflect some variables that are still important for defining the market trajectory going forward, such as:

– The recovery of the high wheat prices. The possibility of conflict between Ukraine and Russia and the possible involvement of other allies on both sides worries markets around the world. In the case of wheat, this attention is even stronger because it affects the wheat-exporting nucleus. Therefore, wheat got back close to USD 8.00/bushel in January and helped corn to recover;

– Oil once again surpassed USD 85/barrel in New York. Oil producers impose a condition to increase production only when prices approach USD 100/barrel. Demand is recovering in line with social liberation in the post-pandemic period. Oil on the rise, scarce gasoline in the United States, and additional demand for ethanol. All this represents strong demand for corn in the US market for the ethanol segment and keeps domestic demand good this business year;

– Crop losses in South America require the adjustment of some actions by importers in the first semester or until the arrival of the US 2022 crop and the Brazilian second crop. The number of the Argentine crop is unknown at this point. Last week’s rains were very good in most growing regions, but the damage to productivity already exists. Now estimates will depend on yield performance for the next few weeks. 48 million tons seem to be the preliminary consensus.

– China has not yet resumed purchases of US corn since June 2021. Would there be a general review of the potential volume of purchases by China for 2022? From 26 million tons to less than 20 million. This could cause major differences to the global market this year. Prices in China are stable, therefore, after imports from Ukraine in December, there are no major movements from China in the international market. This is not very positive for the US market;

– Urea started a more accentuated process of decline at the beginning of the year in the international and the US market. It is difficult to say that it will be enough to lead US producers to maintain the area planted with corn in 2022. For now, the rise in soybeans due to the losses in South America establishes a competitive scenario in relation to corn. The US market suggests that 2 to 3 million acres would shift from corn to wheat and soybeans. The first planting intentions will only be announced on March 31. Until then, these private estimates will drive the market.

     In this context of external factors, we can still add the financial movement of investors and funds by reducing positions in commodities, which seems unrealistic given that the post-pandemic period can keep the pace of food demand high. The fact is that the market is waiting for the figures from official institutions in Brazil and Argentina to reassess the global context of supply, that is, figures from Conab, IBGE, Argentine government, and, finally, USDA. The market does not seem to believe in the private numbers released so far by consulting companies, including the soybean crop, with historic losses in Brazil. Therefore, last week’s rains create a possible environment for crop recovery in Argentina and even establish bearish movements. Is the market ignoring the historic losses of Brazil and Paraguay to focus only on the Argentine crop?

     Agência SAFRAS Latam

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