Porto Alegre, March 14, 2023 – The market begins to focus on the 2023 US crop of corn. The crop situation in Argentina is becoming the most relevant fact for 2023. A really difficult weather situation in the first quarter of 2023 limits any chance of recovery in production or yield within acceptable averages. The crop failure in Argentina forces more concentrated demand in the United States and Brazil. This is already happening with soybeans, but it has not yet become evident for corn. With weekly exports still discreet, USDA lowered its export projection for this business year in the United States and ended up raising ending stocks above market expectations. Now, the big new number will be announced on March 31, with the planting intentions, and the support to soybean prices and the behavior of corn prices may slightly change the trend of expansion of 4 million acres for corn this year.
Adjustments in the size of the Argentine crop carried out by Safras & Mercado, last week by cereal exchanges, and now by USDA, seem to show the consensus of the traumatic situation of the local crop. Despite climate projections showing a healthier two-month period in terms of rains, they ended up not occurring as expected or necessary for the maintenance of plantations. Besides this summer’s high temperatures and below-normal rainfall, there was a surprising frost over the Carnival weekend, which hit Córdoba and Buenos Aires, the two largest corn- and soybean-producing provinces. Frosts in the soybean blossoming and corn pollination stages are fatal for productivity. Then, temperatures returned to extreme heat, and the rains did not come to balance it out.
Now, between 23 and 31.5 million tons, we have all possible numbers for this 2023 soybean crop and from 31 to 38.5 million tons for corn.
Historical losses, which will still depend a lot on what is actually obtained during the harvest. Of course, this picture impacts both commodities. In the case of soybeans, the situation supports soymeal on the Chicago Board of Trade (CBOT), but it has not been able to give the same support to soybeans because of the large Brazilian crop and the US stocks, which are low but do not cause any shortage.
The Argentine government adopted an important decision on corn last week. It communicated to exporters that the already registered export commitments could be fulfilled with the 2024 crop, that is, not being penalized for registrations and lack of shipment in 2023. On the one hand, this allows Argentina to maintain its internal supply, but on the other severely limits this year’s export volumes, currently set by the government at 20 million tons in the business year. Argentina does not need imports, but its absence from the international market will cause demand to shift to other exporters. A strong sequence of washouts to change origin could be the highlight of the coming few weeks, which by the way is already happening in the soybean complex. The Argentine government will only bring its official numbers in April.
With all this scenario of losses in the Argentine crop and the limitations of sales by Brazil in the first half of the year, it was expected that there would already be some shift of export demand to US corn. However, weekly sales remain without enthusiasm, and the highlight of this March USDA report was the cut in the US export projection. Historic crop failure in Argentina and US exports not moving forward? This is the most obvious symptom that Brazilian sales in 2022 were strong and still in February and March. Would this have been enough to supply import markets in the first half of the year without causing greater convergence toward US corn? The data seem to confirm this movement, which now holds prices on the CBOT.
With rising stocks in the United States, the market is still experiencing this export movement and the impact on prices. However, as of this week, the market is starting to place its bets on the Planting Intentions report for the 2023 season. The crop failure in Argentina has brought good price support for soybeans, which have not been able to find new highs, but could be in a clear downward direction without this information from South America. So, we have seen an improvement in the soybean price curve until November for soybeans, with the November contract on the CBOT operating closer to USD 14/bushel.
On the other hand, we can see a flattening of the corn price curve for the second half of the year, also in the short term. The market has the May contract now closer to USD 6.10 and September closer to USD 5.60/bushel. This inversion of corn and soybean curves may also influence planting decisions for the US crop. There has been consensus for growth in the corn area by 2 to 4 million acres, while the soybean acreage would remain stable. The price movement can fairly contain the increase in corn area and distribute a little more area for soybeans.
Planting begins in the Midwest from April 20, depending on early spring weather conditions. Texas has an earlier start also due to irrigation. April and May have weather maps showing normal to above-normal rainfall for the entire producing region. Perhaps some influence from the arrival of El Nino. However, excessive rainfall is not a comfortable situation for planting, as it hinders the entrance of machines into the fields due to soil conditions. In 2019, corn and soybeans had a large part of the cultivated area outside the window, which runs until May 30 for corn and June 15 for soybeans, and created a strong speculative environment already in this planting period. Could that 2019 situation be repeated? These movements are only speculative as, technically, the 2019 crop planted later than usual set record yields.
Another important piece of data from the USDA report was the new rise in exports from Ukraine, showing that, despite the war, export channels are working. There were no changes in the European scenario, but it should be noted that the 2023 European crop tends to recover and decrease the intensity of imports by the bloc from September onward.
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