Insight Focus

• US corn ending stocks higher than expected.
• Volatility around Black Sea disruption continues.
• Bearish signals from WASDE report.

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 6,38 USD/bu.

Market Commentary

Volatility around the Black Sea disruption continued with Ukraine now escorting vessels. The August WASDE was a bit bearish.

Chicago Corn traded flat during the whole week and literally did not move until the publication of the August WASDE published last Friday.

In the meantime European grains were very volatile around the Black Sea tensions with Wheat much more volatile than Corn, which plummeted during the second half of the week. Ukraine attacked a Russian Oil tanker last Monday and by mid week they announced their naval forces had opened a humanitarian corridor for vessels through the Black Sea. If this will help to revive the trade flow is still to be seen.

The August WASDE last Friday increased US Corn old crop ending stocks by 55 mill bu in a combination of higher imports and lower demand as well as lower exports. Despite the higher ending stocks for the old 22/23 crop, carry out for the new 23/24 crop was cut by 60 mill bu in a combination of 209 mill bu of less production all coming from lower yield (175,1 bpa now vs. 177,5 before) partially compensated by 45 mil bu of lower demand and 50 mill bu of lower exports. The yield reduction was fully within market expectations, but we had thought the USDA was not going to make any changes until September after they had already lowered yield in July. This leaves stock to use at 15,3% vs. 15,6% before and vs. 10,6% of the actual crop about to finish.

The higher ending stocks of the old crop was a surprise for us given the very tight physical market we see and is reflected in the very high Corn basis. We will have to wait and see if there is no other downward revision to old crop ending stocks.

Global Corn stocks were lowered by 3 mill ton mostly coming from the changes to the US S&D, but also from 2 mill ton of lower Russian production, 2,5 mill ton of higher Ukrainian production, 3,7 mill ton of lower EU production and finally 3 mill ton of lower Chinese production.

In terms of crop progress, US Corn condition improved 2 pts to 57% good or excellent vs. 59% last year. Corn area under drought has improved significantly and is 49% down from 57% the previous week.

In Brazil, Safrinha Corn is 64,3% harvested vs. 79,8% last year. First Corn is virtually done with harvesting at 99,6%. Conab increased their Corn production forecast to 129,9 mill ton vs. 127,8 before and vs. 113,1 last year. In Argentina, Corn is 81% harvested and BCR projected Corn production at 56 mill ton for the new 23/24 crop which is to compare with the 34 mill ton of 22/23.

Wheat was much more volatile than Corn due to the tensions in the Black Sea.

The WASDE increased US ending stocks by 23 mill bu for the new 23/24 crop (almost fully harvested) despite production down by 5 mill bu partially offset by 3 mill ton of less consumption, but the bulk of the higher stocks came from a reduction of 25 mill bu in exports.

Global Wheat stocks for the new 23/24 crop were marginally reduced by 0,9 mill ton. Canadian production was reduced by 2 mill ton, EU production by 3 mill ton, Chinese production by 3 mill ton and Ukrainian production increased by 2,5 mill ton.

US winter Wheat is 87% harvested now having surpassed last year’s pace of 85% and within the five year average of 88%. Spring Wheat condition fell 1 point (8 points in two weeks) and is now 41% good or excellent vs. 64% last year. Spring Wheat is 11% harvested vs. 8% last year. The area of US winter Wheat under drought was 45% down from 49% the previous week. Russian Wheat is 42% harvested above the 31% harvested las year and the Russian statistical office raised their forecast to 88 mill ton vs. 86,5 before.

In the weather front, the US is expected to have favorable weather for a fourth week in a row in Corn and Soybean areas. In Brazil rains are expected in the south again including the south east. Europe’s heat is expected to ease.

Nothing has really changed after the August WASDE with US and global Corn stocks continuing to make solid gains year on year, and Wheat stock higher in the US but slightly lower globally.

The focus continues therefore on the Wheat side and more exactly on the Black Sea trade flow once the Wheat harvest is almost done in the norther hemisphere and there should be no surprise with actual production numbers. Is just the export disruption out of the Black Sea what can leave supply tight or not with both Ukraine and Russia being major exporters of Wheat, among other agricultural products.

On the Corn side we may still have surprises before the harvest of the northern hemisphere starts. But the US has been enjoying favorable weather for several weeks now and we don’t rule out an upward revision to yield, but also possible is a reduction of old crop ending stocks.

Prices have done the work to reflect higher supply, especially on the Corn side and we are finally in a sub 5 USD/bu market for Chicago Corn as we had expected. We think further downside might be limited as we are coming from a very tight situation from the old crop and we would need a second big crop to see a sub 4 USD/bu market. Still, volatility around Black Sea exports will probably dominate price action and there is some risk premium already in the market.

Volatility around the Black Sea disruption continued with Ukraine now escorting vessels. The August WASDE was a bit bearish. Prices have done the work to reflect higher supply, especially on the Corn side and we are finally in a sub 5 USD/bu market for Chicago Corn as we had expected. We think further downside might be limited as we are coming from a very tight situation from the old crop and we would need a second big crop to see a sub 4 USD/bu market. Still, volatility around Black Sea exports will probably dominate price action and there is some risk premium already in the market. No changes to our average price forecast for Chicago Corn for the 22/23 (Sep/Aug) crop in a range 6 to 6,5 USD/bu. The average price since Sep 1 is running at 6,38 USD/bu.