Porto Alegre, June 5th 2024 – The planting of the US crop will be closed this Monday. Within the window and with weather very close to normal, expectations now lie in crop conditions, as they may offer some symptoms to the market according to their profile. While no negative factors emerge for the 2024 crop, attention turns to wheat. Wheat has been gaining ground in the external environment due to a combination of factors, from war to crop failure in 2024 in the European bloc. The price differential between wheat and corn is beginning to draw attention. The US crop puts pressure on the corn picture while wheat seeks to prompt some support space.
The US corn planting was finished on the 31st, the final date for growers participating in government programs. Some planting may still be completed in the first week of June. Until the penultimate week, 83% of the area were planted, practically the average of 82% for the country. This rhythm suggests a harvest that is well within normal limits, despite some isolated excess rainfall. This first half of June should see good rain in most of the Midwest and still maintain good rain in the Plains, the most worrying region in La Nina years. The rest is the weather for July and August for pollination, silking and pod filling.
Without a major climate factor for the United States in the short term, the market needs to find arguments for strengthening prices in June. As we have indicated here, US weekly exports are strong, and there might be some correction in the USDA data, in this item, in the June report. Last week, 810 thousand tons were sold in this business year, now accumulating 50 mln tons. The USDA projection for the year is 54.6 mln tons, and there are still twelve weeks left to close the current business year. Any increase in the export projection could represent a cut in stocks, still within a safe limit, however, which will influence both the short-term situation and the new crop.
In parallel with the annual routine of paying attention to the US crop, we have drawn attention to the variable wheat. Besides the war that is ravaging Ukraine and Russia, two important wheat exporters, there is a situation of production losses in Russia due to drought and frost in the south of the country. Some local analysts now put the Russian crop below 82 mln tons versus 98 mln in 2023 in Russia. The decline in Russian exports seems a natural trend for this local business year, but other factors still weigh on this environment. There are also climate issues in the Australian and French crops, indicators that raise concerns in the global and European context. Finally, India will be able to remove or reduce the 40% import tariff on wheat, focusing on controlling domestic prices and meeting its huge demand. Wheat prices surpassed USD 7.00/bushel on the CBOT in May, a strong increase reflecting, primarily, the Russian crop and Europe’s attempt to impose new sanctions on Russia. The intensification of this environment could lead to a supply collapse in the European market, which could generate additional demand for corn in exchange for wheat.
In fact, Europe has adopted sudden measures without evaluating the consequences. From January 2025, new rules for the production and import of some agricultural commodities will come into force in the European bloc. The main one reflects the ban on importing products that originate from deforestation and/or do not comply with the ESG rules defined by the UN. In this environment, Europe will require traceability of products to be imported, even if the majority of exporting countries are not prepared or able to accept this type of requirement. The attempt to block the Amazon as a food-producing region is very evident and leads multinational trading companies, which use the Amazon to flow their exports, to adopt prohibitive measures for the purchase of commodities in this region or another that the UN and Europe want to impose their realities. In fact, the United States and some other exporters are trying to adapt to the sustainable products rule, even though this has not brought, so far, any positive economic results for growers, except for a greater increase in costs and unpaid requirements. The fear is that such aggressive insertions into the world production system could have a severe impact on the global food supply or, even worse, be used as a global commercial weapon. In May, just as an example, the United States blocked fifteen Chinese textile industries due to slave labor.
Corn prices were held back on the CBOT last week. The very calm progress of the US crop, a halt to the rise in wheat, and the news that ethanol will not make progress, in current standards, for aviation brought the feeling of a lack of arguments for new corn highs. In addition to the ongoing Argentine exports, Brazil arrives in June with one mln tons aimed at exports and increases competition with US corn.
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