Porto Alegre, September 20, 2022 – The September US supply and demand update report did not bring any surprises to the market regarding productivity expectations to corn. However, the acreage cut released by USDA surprised in the case of corn, given the almost final report issued in June. This left production even lower than expected and created a positive environment for prices even with the harvest starting.
Adjustments also came for the European crop, still higher than expected by the European market itself. The production profile seems to suggest support for the resumption of highs after the US harvest to ration demand and motivate US producers to recover the acreage in 2023.
The US soil moisture of corn picture in the west side of the Midwest, including much of Iowa, remains well below normal and maintains high temperatures for the end of the local summer. For corn, in several locations, this situation no longer affects productivity, it only advances maturation. Some later crops may still have problems such as loss of grain weight due to lack of moisture. For soybeans, in the face of the decisive moment for the definition of productivity, the situation may bring negative surprises in terms of final production in the next reports.
This is a situation that is fully known by the market, which projected productivity very close to that pointed by USDA, at 172.5 bushels/acre, well below the 2021 record of 177 bushels/acre, but not as low as the estimate from the Pro Farmer crop tour. The harvest reached 5% last week and must accelerate from now on, bringing the local domestic market to a normal pace. Therefore, some moderation in prices is still expected in the coming few days, that is, with the arrival of 354 mln tons.
However, the big surprise was the cut in acreage from 89.4 to 88.6 mln acres. If the cut took place in the area to be harvested, we could point out that the drought caused area losses after planting. The cut of 800,000 acres really surprised everyone in the corn market and represents an additional production cut of 3.5 mln tons out of a total cut of 10 mln tons from the August estimate. These new data, considering that the season is only closed in January, brought carryover stocks of only 31 mln tons for 2023, balanced by the cut in the projection of future demand by USDA. This demand cut will have to be confirmed by the market in the coming few weeks. If the symptoms for demand and exports point to a more discreet moderation than expected, the cut in stocks could be an additional factor for prices over the first half of 2023.
There was also a new cut in the European crop from 60 to 58.8 mln tons. With adjustments in the 21/22 picture, the importation environment for 22/23 remained at 19 mln tons. It is important to emphasize that the European market points to a much lower crop, 54 mln tons, and new adjustments may appear in the USDA data in its next reports. Another surprise was the expansion of Ukraine’s crop estimate to 31.5 mln tons and potential exports of 13 mln tons in 22/23. Negotiations involving the export corridor continue and are important to define the continuity of corn and wheat sales from Ukraine from November. Russia uses the export corridor as a negotiating point at the moment.
While the Brazilian agricultural media maintains the attempt to impose the vision that China would be interested in importing Brazilian corn, besides releasing distorted information about a severe crop failure in China, USDA brought information closer to reality. Indeed, the drought continues in southern China and affects corn production in smaller growing regions. However, as we have pointed out in our newsletter, the crops in the center-northeast region of the country, which play a more significant role in production, are in perfect condition and, therefore, USDA brought a record Chinese crop of 274 mln tons.
China is absent from global corn imports and must keep, for the second consecutive year, cuts in purchases, now of 18 mln tons. Depending on the domestic demand scenario, China may resume imports in the first half of 2023, at this time from the USA, Ukraine, and perhaps Argentina. Brazil will not participate in this Chinese movement in the first half of the year, should it occur.
In general, therefore, the USDA report was considered bullish due to the cut in the US crop, with the consequent positioning of stocks at very low levels, which will need to reflect rationing of demand as well as exports in the coming few months. As a priority, prices need to remain high to motivate corn planting in the US and rebalance production for 23/24.
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