Porto Alegre, November 23, 2021 – Another week in which corn prices did not find room for moderation in the international environment. Wheat prices at USD 8.40 on the Chicago Board of Trade (CBOT) are the main supporter of corn prices at this time. The US exports are just normal, but with sales at 50% of the target for the business year. The US export market needs to boost sales. With the harvest practically over, the picture now turns to the main points for the first half of 2022.
As we have indicated in our weekly newsletters, wheat has been a key variable for high corn prices in this second half of the year. Even with the second-largest corn crop ever reached in the United States and with a record crop in China, the international market has not offered any slack for prices.
Wheat hit USD 8.40 a bushel last week on the CBOT. Attention to the winter crop in the Northern Hemisphere seems to have greater support than the arrival of crops from Argentina and Australia in the international market. Even Brazil must export almost 1 million tons due to high international prices. Of course, high prices motivate planting, and the market believes that the next winter crop may bring part of the global supply back to normal and send prices lower. However, this would only occur from mid-2022 and would still depend on the entire climate picture in the spring of the Northern Hemisphere.
Following this alignment with wheat, corn would have a space to envision moderation in the international market only in the second half of 2022 and depending on the next US crop. The bias that is being given to a retraction of the corn area in favor of soybeans and cotton next season, for the time being, is just a hypothesis. Corn costs can rise from USD 2.85 to 3.50/3.70 a bushel this week, for a current market at USD 5.50 for December 2022. So, those who make crop estimates by looking at costs forget that it is profitability that decides. For the US grower who always prefers to plant corn, USD 5.50/bushel is currently very profitable even with higher costs. If soybean prices drop with the arrival of the South American crop in the first half, which is normal, this theory of cutting the ??corn area in the US could quickly disappear.
Currently, corn on the CBOT is supported by some priority indicators:
– High price of wheat;
– High ethanol prices due to expensive oil and gasoline;
– The expectation that China can resume purchases at any time with the completion of the local harvest;
– Sales indecision by US growers due to the supply of inputs;
– The effects of La Nina on South American summer crops.
The US weekly exports now accumulate 33 million tons in commitments, with 12 million tons being shipped to China. In the same period of 2020, the cumulative volume was 35.2 million tons, so the current pace actually seems slower. As USDA forecasts 63.5 mln tons for the year versus 70 mln tons in the last business year, it is normal and within projections that preliminary data show a slower pace.
China resumed corn purchases from Ukraine last week, with the end of the local harvest. It could be a first symptom that, with the end of the harvest, China would resume international corn purchases, which could represent a return to the market in January. There is a chance that China waits for the Argentine crop for shipments after April.
For now, the international market looks expensive and is awaiting definitions of the winter wheat crop, global demand profiles, and the 2022 US crop. Good wheat and corn crops next year could not support the current high price levels in the international market. Two points in this environment are relevant and not directly linked to supply and demand:
– With a further USD 3 trillion placed into the US economy, if passed by the Senate, local and global liquidity could accelerate similarly to the 2007/2008 real estate bubble. Excess liquidity that ends up bringing distortions to prices and markets. More liquidity, greater possibility for commodities to keep prices higher for longer due to demand acceleration;
– A change of environment in the Fed’s monetary policy, extending more than necessary a very low interest rate, would accelerate this distortion in markets, generating higher commodity prices for a longer time;
For this reason, the decisions that are being taken in the US monetary policy environment may prevail in this context of international commodities market, making this high liquidity remain active in stock and commodities exchanges and showing demand-driven markets. Of course, monetary policy distortions end up being offset by aggressive and sudden reversals at a later time, such as in 2008.
Agência SAFRAS Latam
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