Porto Alegre, August 1, 2023 – There are many comments, analyzes and false impressions about the 2023 US crop. In fact, we are not in a year in which crop conditions are perfect due to the situation registered in June. The market sensitivity to the climate scenario, especially in view of the sharp downturn in Argentina and, now, the difficulties of the Black Sea, grew in July. This is because crops are going through their critical phase for defining production. Many corn crops are already graining, but the vast majority will still depend on the weather in August. July, however, was a month in which the rains were much better and sufficient to keep crops on their production schedule. Undoubtedly, the heat wave was scary at the end of July. Now, with an excellent projection of rainfall for August and milder temperatures, it seems that the picture will be more balanced for both corn and soybeans. Doubts about yield will only be aligned with the report on the 11th, when USDA will carry out its proper field survey for production reassessment.
Crops remained stable last week at 56/57% in good to excellent conditions, a historically low percentage. We must understand that this information is important to show an isolated and visual diagnosis of crops. The market is considering this information as more relevant for prices. However, this is not decisive for the yield projection by USDA, and this will only start to become more evident with the report on August 11, when the evaluation for the yield projection will be carried out based on field information.
Thus, until the 11th we will notice all types of private projection, from companies dedicated to researching mathematical models from satellite images to traditional brokers and local consulting companies. It will really be a major divergence between numbers that could cause volatility until the USDA pre-report.
While this picture is not consolidated, the two main market factors persist:
– The tense situation in the Black Sea;
– The climate in the United States.
Despite less inflammatory speeches and the UN’s call for Russia to return to the grain agreement, the situation remains tense. Russia continues to bomb Ukraine’s alternative ports, and the flow of commercial ships in the Black Sea environment remains restricted. At the same time, several new routes are being traced, and some old ones that had been little used, such as those in the Danube, started to be observed.
Russia, in turn, has a record wheat crop and, with better prices, keeps boosting its exports, including markets served by Ukraine. We can say that, for wheat, Russia itself will neutralize the upward speculative movement. For corn, as we already evaluated in our last newsletter, some export volume will occur through the alternative routes generated by Ukraine. The remainder will become demand for the United States, Brazil, and Argentina in the coming few months. It is difficult to believe there will be greater stress for the market based on the information available so far.
As the new chapter of the war unfolds, the focus remains on the climate environment in the United States. July resumed the picture of rain in much of the Midwest. Besides, it did not rain enough to give uniform general support to the recovery of crops. However, it was undoubtedly sufficient to balance good pollination in earlier crops and early pod-filling. A second share of crops is advancing at this stage at the turn of the month.
The great fear of the market was the heat wave that reached the United States in the second half of July. From the climate maps, however, this phenomenon seems to give way to its opposite version, that is, below-normal temperatures and above-normal rainfall for the first half of August. From the information received so far, there were no problems with pollination, the ears are complete up to the tip, with no signs of malformation. Iowa remains the state with the highest sensitivity to this condition at this time.
One situation is soil moisture in a longer term and that shows deficits, which can really compromise yield potentials. The other is the rainfall regime necessary to keep the crops on this final trajectory of production definition. On the next 11th, USDA will bring this more realistic view of the field to the market, and most of the doubts will be cleared. So now we are going to have a daily round of private information that will bring their estimates and be confronted by the USDA data on the 11th.
At the same time, Argentina adopts another attitude to try to generate revenue and add dollars to its economy. Now, a special dollar has been created for corn, at around 340 pesos/dollar, for those producers who export. In one week, with the government’s decision, Argentina may have sold nearly 1.5 to 2 mln tons of corn. Export registrations remain limited to 20 mln tons this year, and there are export declarations already made by trading companies at 14.5 mln tons. Therefore, it seems that Argentina would have another 5 mln tons for sales under this new special exchange rate regime before reaching the limit of export registrations.
The fact is that in September the United States will begin its harvest, with a strong focus on exports, even with some loss of production. Argentina arrives with a complementary volume to empty internal stocks. Brazil enters with its large production of 2023 trying to boost sales over the semester, given the logistical space in warehouses. It still seems difficult to find great support in international prices for what we have so far, and it is up to us to look now at the US yield. The current forecast for the US crop is 389 mln tons, a new record. If there is a contraction to 380 mln tons, the market will continue to be bearish for the CBOT.
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