Porto Alegre, December 14, 2021 – The report from the United States Department of Agriculture (USDA) did not bring changes to the US corn market. There were some adjustments for the European picture and wheat. The slight increase in wheat stocks could be an indication of pressure on the corn market over the week. However, what was noted was the impressive support for corn prices on the Chicago Board of Trade (CBOT) above USD 5.80 a bushel. Again, a political obstacle with the risk of war between Ukraine and Russia, perhaps with the involvement of other countries, may be bringing a price support variable to the corn market, as Ukraine is one of the four-largest global exporters.
This USDA December report brought no changes to the data for the United States. Basically, the ending stocks for 2022 remained at 37.9 mln tons while the market expected some cuts. In January, USDA will close the data for production in 2022 and, in the next report, some general changes may occur. However, demand seems to be well-positioned in the report for both feedstuff and ethanol.
Europe registered the biggest changes in this January report. The effects of very expensive wheat and problems with bird flu in several countries of the bloc along with African swine fever in Eastern Europe may have helped the changes in the demand projections for corn. However, the projection for European imports were left at 15 mln tons in 2022, slightly above 2021, which is a number that has little impact on the global market.
Another tense environment between Russia and Ukraine in the Black Sea raises the hypothesis that shipments and flow of goods could be affected if there is a military conflict in the region. Ukraine is a major exporter of wheat and corn and has China as one importer. Could a cut in these sales drive China and other importers towards South America and the United States? It seems that this is what the market expects when sustaining corn prices at such high levels on the CBOT.
Not even the wheat lows last week managed to bring down corn on the CBOT. Wheat resumed trades below USD 8.00/bushel, but corn refused to fall below USD 5.80. As a matter of fact, if we look at the CBOT curve, we will see corn at this price level until September 2022. The market acts as if corn supply continued to be very tight until the arrival of the 2022 US crop and/or other sensitive factors might occur until then. The three points that keep supporting the CBOT prices refer to still expensive wheat, the demand for ethanol with oil more expensive, as well as the expectation of purchases by China at any time.
In the ethanol environment, the decision on the US production mandate changed the size of the use of this biofuel in 2020 and 2021 and set a new target for 2022. In Biden’s first major biofuel policy decision, the Environmental Protection Agency (EPA), which manages this matter, proposed to retroactively set total renewable fuel volumes at 17.13 bln gallons for 2020. This number was below a previously set rule (before the coronavirus pandemic) of 20.09 bln gallons for the year. This is because the US justice banned the E15 and kept only the E10 for local use, setting volumes of 18.52 bln gallons for 2021 and 20.77 bln gallons for 2022. So, the 2022 volume must be a new record and new demand point for corn in the 2022 business year.
The Chinese picture, in turn, only showed minor corrections and a total crop slightly lower than initially expected. With estimated imports of 26 mln tons by China and having purchased only 12 mln tons from the United States so far, the market is focused on the possibility that China will resume purchases at any time.
Agência SAFRAS Latam
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