Corn: Higher Prices Here to Stay?

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Forecast

Our 2020/21 average price forecast (Sep/Oct) remains in a range of 4.2 to 4.6 USD/bu for Chicago Corn. The average price since the beginning of the crop (Sep/Aug) is running at 4.345 USD/bu.

Market Commentary

All grains in Chicago had a negative week following the disappointing February WASDE. EU wheat made small loses too, while corn was basically unchanged. Brazilian corn underwent small gains of less than 1%.

Last week started with a rally ahead of the February WASDE, which eventually disappointed and caused the correction in the second half of the week. Chicago corn closed 1.8% down week-on-week.  

The market thought China would import 22m tonnes of corn from the US (tightening its closing stocks). In the end, its imports exceeded expectations and increased by 6.5m tonnes to total 24m tonnes. With this, the WASDE put US closing corn stocks down 50m bushels, even though its production and consumption estimates were unchanged. Its closing soybean stocks also took a hit, being cut by 20m tonnes due to increased exports.

Globally, corn closing stocks were increased by 3m tonnes due to consumption being down by the same amount. The production estimate increased by a slight 160k tonnes.

The Buenos Aires Grains Exchange (BAGE) left its corn forecast unchanged at 46m tonnes (vs. the WASDE’s 47.5m tonnes) down from last year’s 51.5m tonnes. The Rosario Exchange, however, increased its forecast to 48.5m tonnes, up from 46m tonnes before. We therefore have a range of 46 to 48.5m tonnes, with the USDA sat very much in the middle.

CONAB in Brazil is now anticipating a larger safrinha crop and has subsequently increased its production forecast by 3m tonnes. It now sits at 105.5m tonnes, compared to last year’s 102.5m tonnes. It also raised its soybean production forecast to 133.8m tonnes, up 3.8k tonnes from before.

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Franceagrimer left its French corn production forecast unchanged at 10.6m tonnes, up 4.4% year-on-year.

At the start of the week, new cases of African Swine Fever (ASF) were reported in China meaning pork futures rallied. This could be negative for corn and soybeans, as demand for the grains could weaken if the situation spirals out of control again.

For wheat, the WASDE made no changes to the US’ supply and demand. However, it lowered global stocks by 9m tonnes as consumption is up 10m tonnes, whilst production is just 1m tonnes higher. This large increase in consumption comes primarily from China.

Franceagrimer raised its French wheat production forecast by 155k tonnes.

Last week’s correction was healthy on one side, as the market has rallied almost 90% since last again. And despite the correction, the fundamental picture remains strong.

The USDA’s increase of Chinese imports is based on real needs: the rapid increase of its pig herd and the Government’s low stocks. This increase came without a similar number of exports for the main exporting countries.

When compared with corn and soybeans, wheat is the only grain that looks well supplied in 2020/21. However, the 9m tonnes of lower ending stocks leaves wheat stock variation just 4m tonnes positive, down from the 13m tonne stock build we had before. So, wheat supply is getting tighter meaning there’s less room for weather problems or other supply issues.

The high price environment should stay.

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Alberto Carmona

Graduated at the University of Seville (Spain) and University of Paderborn (Germany) with a Bachelor in Economics and Business Administration and an Executive MBA from Institute San Telmo (partner school of IESE). Worked in Abengoa Bioenergy from 1999 through 2017 when I founded NixAl Commodities, an Ethanol boutique focused on market intelligence, risk management and engineering. Professional background in financial and commercial activities, promoting and financing renewable energy projects in Europe, Brownfields and Greenfields. I have been active in the international development of Bioethanol since 2001 having lived and worked in The Netherlands, Brazil and U.S., the three main markets, while leading global trading operations, risk management and lobbying.

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