Porto Alegre, September 12, 2023 – The climate debate over the outcome of this US crop goes on. This season’s rainfall environment has been very different, starting with a great planting window, followed by a drought in June, rains arriving at the right time for pollination, and now, at the end of the cycle, plenty of heat, and little rain. It is difficult to work with record productivity in a year with such climate variation. However, due to the drought and the heat at the end of the cycle, this year’s production will only be determined by harvesters, and until January we may still have reports that raise doubts in the market. This week, however, USDA needs to adjust its supply and demand information for the business year, which ended in August, and for the new crop. The market consensus does not project anything bullish for corn, and therefore the surprise will be if USDA brings production far below 380 mln tons.
An irregular US crop and no chance of record productivity, at least that is what the US market is trying to show at the moment. It would be a surprise if USDA brought an aggressive yield cut for corn in this September report. As an example, Kansas began reaping last week with above-average but not record yields. The biggest issue continues to be Iowa, the largest producer, which for the last 20 days has received very discreet rain and high temperatures.
The market consensus brought the expectation of 380.85 mln tons, that is, the third-largest US crop and in line with the production estimated by the crop tour, despite the productivity. The Pro Farmer crop tour brought 172 bushels/acre, while the market consensus is 173.3 bushels/acre. The assessments, however, do not provide a set of expectations for yields well below this or below 170 bushels/acre, or even a catastrophic crop. We must understand that the final production number will only be
known in January and, until then, several adjustments will be made based on harvest data.
So, it seems difficult to expect a bullish report for corn this week. There is also the possibility of downward adjustments in exports of the old crop, 22/23, increasing carryover stocks. The only real condition for a price recovery on the CBOT in this report is a surprise in the production update, with a consequent sharp cut in stocks in the new season. Particularly, we do not believe in this bias for corn now. Surprises about European or Chinese production may arise, being an indicator that would help US exports or, at least, provide an optimistic outlook.
With the third-largest output in US history and stocks returning to a level above 50 mln tons, it seems difficult to see CBOT prices remaining close to USD 5.00/bushel, as the 2023 harvest advances. Could we believe that prices will no longer return, under current conditions, to the historical average of USD 3.60/bushel? It seems that this vision is clear, at least for this 23/24 season. However, believing that USD 5.00 would be the new price standard still seems to lack adequate support. A bottom for the US crop would be USD 4.30/bushel, above average, but not as low as pre-pandemic levels. We must wait for pressure from US domestic sales and on premiums, given the strong competition with Brazil in exports.
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