US planting intentions to corn report is the beginning of the 2022 crop

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     Porto Alegre, March 29, 2022 – While the world market tries to replace top Ukrainian commodities and seeks alternatives to Russian wheat, the US growers have historically high prices for three cultures on the eve of planting the 2022 crop. Wheat, corn and soybeans have prices very high on the Chicago Board of Trade and, certainly, envision the coverage of higher production costs for this season. Now, USDA will release its research to assess the intention of local growers for this crop. With such high prices, it seems really difficult to see corn, the main US culture, lose area to other crops in this 2022 season.

     The planting intentions report in no way reflects what has been pointed out so far about the expectations for planting in the United States in this 2022 crop. The data signaled at the USDA Forum and the signals from local consultancies lose importance in the face of this effective survey that is carried out amid growers this March. The planting intentions report will be released on the 31st, along with the quarterly stock update.

     At this moment, the exchange ratios between soybeans/corn and wheat may be of little value for the planting decision. First, because spring wheat is a preferred crop in the north-central Midwest and Plains and, at current prices, could get some of the soybean acreage. Second, corn is the preferred crop for Midwestern growers. USD 6.50 to 7.50 a bushel and intense demand for the ethanol segment are fundamental indicators for local growers, and it seems difficult that with these historical price levels, even with increasing costs, growers will stop cultivating large areas with this culture this year. Soybeans also have prices close to historic highs and would not lose areas to other crops.

     Clearly, we would have a year to increase the planted area in the three cultures without a doubt. The issue is really area availability. Perhaps the numbers come out a little more significant because of new areas in more problematic regions with climate or with lower productivity potentials. The acreage could increase in the three cultures, but with lower productivity averages. If these areas outside of the US Midwest do not appear to add some volume to this crop, the stakes will be on higher yield.

     The market bias still points to cuts in the corn area from 2 to 3 mln acres and an area increase in the same proportion for soybeans. Surprisingly, the market does not expect an increase in the spring wheat area even with the historic price of this commodity. Basically, we do not see room for growers to reduce the corn area due to the current level of prices, demand and stocks. Consensus begins to emerge for an area of ??91.5 mln acres, against 93.3 mln in the 2021 corn crop.

     Now, the market is reducing its focus on the Ukrainian crop. The international market is already replacing this supplier with the USA, Brazil and Argentina. The focus now is on the schedule of events ahead:

     – Planting intentions;

     – Entry of the Argentine crop and government decision on export registrations, which need to be expanded. Today they are at 25 mln tons for 2022, and the export potential would be 30/35 mln tons;

     – Weather for the beginning of the US planting in the second half of April. For now, the forecast for rains in April and May is normal to above normal. It does not seem that there will be a serious problem with the planting development in this 2022 crop;

     – US planting pace and weather conditions;

     – On May 10, USDA will release its first supply and demand estimate for the 22/23 business year, and the basic data will be the estimated area for planting. If the planted area will actually be cut in its intentions, USDA will be able to use the higher yield estimate to equalize the production projection for the 2022 crop. We must understand that in 2021, even with all the weather problems seen in the center-north of the Midwest, corn and soybean productivity was record-breaking. So, it will be no surprise if in the first estimate USDA points to a potential yield above 177 bushels/acre, above the 2021 record;

     – Weather in July and August will be fundamental for the definition of the 2022 US crop.

     Basically, we have now entered the 2022 season for the US crop. Regardless of the end of the war, whether Ukraine plants or not, or sanctions on Russia are lifted or not over the year, what really matters from now on is whether the US crop will be good or have problems. As the United States is the major global supplier, the size of its crop will define a scenario of high prices for another year or some slowdown from the second half of the year. We should reflect that USD 7.50/bushel today, USD 7.30 for September, and USD 6.50 for December are historically high prices to be sustained with normal crops ahead. Afterward, global demand issues may create new levels. What cannot be taken into account is that high production costs will guide market prices and prevent lows. If prices reflect a picture of good supply, they will yield regardless of high production costs.

     So, there is still strong global demand. We do not know what the result of the sanctions imposed on Russia and their duration will be, we have China’s wheat crop with historic losses, the replacement of Ukraine as a supplier, and still uncertain climate variables for the United States. Important points that may not bring prices down immediately but that will be determinant over the next few weeks.

     Agência SAFRAS Latam

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