Porto Alegre, July 17th, 2024 – The USDA July report has the feature of adjusting the planted area data to a new production forecast. This new adjustment brought production to 383 mln tons, well above the previous estimate. In May, we pointed out that the Department should correct the export projection upward due to the strong weekly pace of sales. This correction did not appear in the June report, but the adjustment came in July to compensate for the projected higher production. The increase in exports and the cut in the stocks of the current business year do not change the trajectory of corn prices in any way, however, it generates a specific situation of volatility, which is completely normal.
As we have shown in our latest newsletters, the July report released by USDA does not have the capacity to change productivity projections in a crop that is progressing close to normal. Basically, USDA confirmed this expectation. Also characteristic is the adjustment of the planted area based on data from the June 30 report, in the case of corn, going from 90 to 91.5 mln acres for the United States. This condition was also confirmed, resulting in a production increase from 377 to 383 mln tons. Without any other change in the supply and demand picture, stocks would have to rise by 6 mln tons for the new crop and approach 60 mln tons.
In May, we drew attention to a necessary adjustment to be made by the department in relation to the export projection for the current business year. Weekly sales were very strong, there was a need to redesign annual exports, and we expected this adjustment for the June report, which did not occur. Now, USDA has corrected the projection, raising current exports to 56.5 mln tons, which accounted for a cut in stocks from 51 to 47 mln tons. As the market did not predict this in its consensus, the number brought a certain surprise and represented increases in corn on the day of the report. However, we do not see this situation as a trend reversal or a factor that could reverse the possibility of prices below USD 4.00/bushel in the US harvest from September onward. This is an adjustment that should have already occurred, but by being delayed it caused this sudden market movement.
In the other data from the report, there was no adjustment in China’s situation, despite the Chinese government maintaining the forecast for a crop larger than that indicated by USDA. A minor correction in the European crop, from 64.8 to 64 mln tons, with import forecasts of 18 mln tons, below the current season. No changes to the Ukraine framework. The strong wheat harvest in Europe and the Black Sea, as well as the decline in wheat at the end of the week, also weighs on prices on the CBOT. In fact, there are few alternatives for a hike in corn prices, especially because the US crop is advancing in good conditions. For the last two weeks, the rains have been very regular throughout the Midwest, and there does not yet seem to be a climate variable to affect the local crop and change the price trajectory, especially as Brazil arrives with its production to meet the global demand with at least 40 mln tons.
Copyright 2024 – Grupo CMA