Insight Focus

• American corn exports look set to disappoint this year.
• The US Dept of Agriculture forecast higher ending stocks as a result.
• This has weighed on grains markets.

Forecast

No changes to our Chicago Corn average price forecast for the 22/23 (Sep/Aug) crop in a range of 6 to 6,5 USD/bu. The average price since Sep 1 is running at 6,7 USD/bu.

Market Commentary

Third consecutive negative week for grains this time on the back of a bearish WASDE. Argentinian Corn production downgraded again.

We had the March WASDE last week which added additional bearishness by increasing US Corn stocks due to lower exports. This was somehow expected as FOB Gulf prices have been expensive vs. other origins for a while, mainly vs. Brazil and Ukraine. World Corn stocks were increased by a marginal 1,2 mill ton despite almost 4 mill ton of lower production but 6 mill ton of lower consumption.

The biggest change in production was a reduction of 7 mill ton in Argentina down to 40 mill ton, which was in line with local analysts’ previous projections. But last week BAGE and BCR lowered their projection again to 38,5 mill ton and 35 mill ton, respectively. BAGE had 41 before while BCR had 42 before. This would be the worst harvest of the last 15 years in Argentina.

But this sizable downgrade to Argentinian production was not enough to stop the market from falling. Only last Friday we had a positive day on some technical buying.

The lack of competitiveness of US Corn has been happening for a while losing market share vs. Brazil and Ukraine. But after the correction of the last two weeks we have heard a big volume has been booked to China.

In Brazil, the Soybean harvest continues to run slow just 43,9% complete vs. 52,5% last year. The second corn crop made a big weekly progress and is now 63,6% planted but still behind last year’s pace of 74,8%. The first Corn crop is 22,6% harvested vs. 26,1% last year. Conab in Brazil increased their Corn production forecast to 122,3 mill ton (26,7 first crop and 95,6 safrinha) which would be a 5,4% increase year on year.

In the Wheat front, the March WASDE left their forecast unchanged for the US. They did lower global stocks by 2 mill ton in a combination of 4 mill ton of higher production but a bigger increase in consumption. Australian production was increased by 1 mill ton, FSU by 2,4 mill ton and Brazil by 500k ton.

US export inspections showed a big fall of 59% week on week at the beginning of last week pressuring prices down to start the week. By the end of the week, positive expectations the grains corridor out of Ukraine will be extended resulted in a sentiment of ample supply causing another sell off.

In the weather front, US weather is expected to have dry and warm weather again in the Wheat regions, which could be negative for production. Also Europe is expected to have dry weather in the south and rains in the north. Brazil is expected to receive heavy rains which will probably delay again harvest progress of soybean and first corn crop, but dry weather is expected for the end of the week.

The market continues to trade a future big crop in Soybeans and Corn but we are still far from that production increase hitting the market, if it finally happens. In the short term, the market is in deficit and is worsening given very poor conditions in Argentina. And Europe is having an important moisture deficit which will leave Corn planting in a very challenging situation therefore the new crop is still uncertain.

We think funds needed a reason to exit their longs and book some profits and that is what is causing this quick sell off in all grains, also helped by a negative macro environment.

The correction in Chicago Corn has now left US Corn competitive vs. other origins thus no need for further losses. We could well see some recovery given the short term deficit. But overall the trend should be for prices to trade lower as we approach the summer if we have normal weather and planting expectations are confirmed.