Porto Alegre, June 20, 2022 – Last week remained very tense for commodities in the international market. The aggressiveness of the Fed with interest rates and an extremely strong dollar is not a favorable combination for commodities prices, suffering negative influence according to the fundamental picture. The first to immediately feel the action of the Fed was crude oil, with a sharp decline at the end of the week, with bets on increased production and a cut in demand. For corn, the focus could still delay by sixty days. The US climate determines the market at the moment, and the heat wave, already reported in our previous editions, can reach pollination and bring some stress to prices. Could low oil prices affect ethanol production? This is an additional new variable to be evaluated in the coming few weeks.
Two major volatilities in the corn price have been the highlights this June:
– The risk of stoppage in the corn harvest and export shipments in Argentina due to the shortage of diesel oil;
– The strong heat wave of this late spring in much of the United States.
The Argentine government has tried to address the diesel shortage by increasing the use of biodiesel from 5 to 12.5%. For the time being, it is not possible to assess whether this will be sufficient. But the sharp decline in oil prices last week could help the country resolve the supply issue without having to raise prices.
The climate picture in the United States always deserves a lot of attention with the approach of the pollination and silking period, mainly because the planting window lasts 30 days and most crops are in the same reproductive cycle. Thus, a weather problem in July and August may bring a more aggressive market movement for international prices, while a good weather condition may bring a downward variable to global prices. Regardless of the global interest rate curve, some commodities still have an important variable to drive prices: the weather.
So, two important pieces of information ahead:
– The planted area report on June 30;
– The climate picture for July, the month of corn pollination.
The report on the 30th will define the planting profile for this 2022 crop and outline a clearer trajectory for the supply and demand scenario for the 22/23 season. Owing to the very tight corn planting profile in a late window and for having closed at only 98% of the estimated area, USDA may confirm the planting intentions with a cut of 4 mln acres or more compared to last year, maintaining soybeans with area gains. Soybeans were planted in a perfect window and, due to the longer planting period in June, part of the area of unplanted corn may have been switched to soybeans. But until the 30th, US private companies will release their estimates, causing pre-report price volatility.
The weather has been showing an extremely hot month of June across the US Midwest. Extreme temperatures in a crop development period. The picture is not explosive for prices only because of two factors: the moment is still for the end of planting and initial development, and there is soil moisture still coming from the last 30 days of good rains. Thus, heat and soil moisture must be considered favorable for crop development and germination. The point is that this situation cannot go on in July.
The climatic environment for prices on the CBOT is not new for markets or exclusive to 2022. Only this year the focus is very concentrated on a good US crop, without problems and that can guarantee support to world supply in 22/23. There is no shortage of corn in the world, there is no risk of shortages, China is completely out of new corn purchases, including an excellent planting scenario, and Brazil is coming with 37/40 mln tons of exports this second semester. The great chance of maintaining high prices in the second semester is fully concentrated on the next 60 days of weather in the United States, regardless of any other indicator.
Agência SAFRAS Latam
Copyright 2022 – Grupo CMA