Insight Focus

• USDA estimate corn plantings grew 2m acres this year.
• Corn futures fall 12% in the week.
• Soybeans rallies on lower stocks and acreage.

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 6,53 USD/bu.

Market Commentary

The USDA surprised the market by publishing 2 mill acres of higher Corn planting and Corn in Chicago melted 12% week on week. Wheat plummeted as well following Corn, and Soybeans rallied on lower stocks and lower acreage. The European market followed suit but had smaller loses.

Last week started negative in Chicago, just like it ended the previous week, as rains and favorable weather was confirmed continuing with the downside move of the previous week.

Another reason of the correction in Chicago Corn was the lack of competitiveness vs. FOB Brazil prices as the market had rallied to much during the previous few weeks leaving FOB Gulf prices not competitive for exports. Cheap Brazilian prices have triggered Conab (the Brazilian USDA) to buy 500k ton of Corn aiming to sustain local prices.

And then we had last Friday the USDA quarterly stock and planted acreage report. Corn acreage was expected at 91,85 mill acres (vs. 88,6 last year) and came in much higher at 94,1 mill acres vs. the 92 mill acres of the latest WASDE. Quarterly stocks as of June 1 came in at 4,1 bill bu vs. 4,255 expected, as we had anticipated.

US Corn condition fell for a fifth week in a row last week by 5 points to just 50% good or excellent vs. 67% last year. 70% of Corn area is under drought conditions higher than the 65% of the previous week.

The lower crop condition, the higher area under drought condition, and the lower quarterly stocks than expected (also vs. last year) did nothing to avoid Chicago Corn from plummeting 12% last week. Only last Friday the market fell 4,2% on the back of the higher acreage.

Elsewhere, In Brazil, Safrinha Corn is 11% harvested making another big weekly advance but still slower than the 20,4% progress of last year. First Corn harvest is 93,8% complete.

In the Wheat front US and EU Wheat plummeted following Corn in Chicago. The USDA quarterly stock and planted acreage report showed Wheat acreage of 49,6 mill acres fully in line with the 49,7 mill acres expected by the market. Stocks as of June 1 were 580 mill bu much lower than expected and 17% down from last year, but this was not enough to prevent the market from plummeting more than Corn.

The MARS bulletin form the EC published higher than expected Wheat yields in Russia with winter Wheat production forecast at 62,6 mill ton with a yield of 4,15 ton/ha above the five year average by 12%. Production of spring Wheat was projected at 24 mill ton making total Wheat production of 86,6 mill ton below the 105 mill ton produced last year but above the fiver year average. This is very much in line with the 87 mill ton projected by the Russian ministry of Agriculture.

US winter Wheat is 24% harvested still slow vs. last year’s pace of 39%. Condition improved 2 pts and is now 40% good or excellent much better than last year’s reading of 30%.

On top of declining prices due to last Friday’s USDA report, weather was favorable in the US Wheat regions by the start of last week starting the downside move.

We have the expiry of the Black Sea export corridor agreement on July 18 and again the big doubt what will happen. Russia has already said they will not extend the agreement. The reality is that despite the extension back in March, the pace of exports is running really slow with just a handful of vessels being inspected per day.

In the weather front, rains are forecast again this week for the US Corn Belt, but again not much. We may see this week’s Corn condition having stopped deteriorating thanks to two consecutive weeks of rains. The drought monitor showed last Friday 70% of Corn area is experiencing drought. In Brazil dry and sunny weather is expected which will help to accelerate harvesting of safrinha Corn. In Europe dry weather is forecast in the south and some rains in the north.

We think last week’s move may have been somehow exaggerated for Corn and Wheat and fueled by long liquidation of spec funds. But there is an important figure to take into account and that is yield. Corn yield will not be 181,5 bpa as projected in the latest WASDE given persistent dry weather and bad condition. Just Illinois and Iowa represent 26% of the overall projected planting area and their condition respectively is 26% good or excellent vs. 70% last year, and 56% vs. 80% last year. A 10% loss in yield only in those two states would mean some 250 mill bu of lower production year on year. This is something to keep an eye on and we expect the higher acreage to be offset by lower yield leaving the 2 bill bu of carry out basically unchanged.

The next reference the market will be looking at is the July WASDE next week where we should see the higher acreage reflected, but maybe not yet the lower yield we are expecting as they will probably wait for July weather to make a first assessment of yield. True is favorable weather during July can help to recover part of the damage the crop has suffered until now. Our supportive factor was lower yield, but that has now been offset by higher acreage.

We could see a correction after last week’s big fall, but given we have rains expected this week it may fall further. Weather and expectations around the July WASDE data will define price action this week. Expect volatility to continue.

Corn in Chicago melted 12% week on week on the back of higher acreage than expected despite lower stocks and worsening conditions. Wheat plummeted as well following Corn, and Soybeans rallied on lower stocks and lower acreage. European market followed suit but had smaller loses. We could see a correction after last week’s big fall, but given we have rains expected this week it may fall further. Weather and expectations around the July WASDE data will define price action this week. Expect volatility to continue. 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 6,53 USD/bu.