Corn market turned to one of the most exciting in the recent time. Market operators have already adjusted to condition arose from the global pandemic and lockdowns and no one was expected for the new “corn knock”.
Decline of corn crop in the Black Sea regions, surging demand from China, high price volatility, favorable weather for US crop and clouded outlook for South America…These and many other issues we discussed with the Vice-President of StoneX Group, Matt Ammermann.
- Matt, currently we can see rather optimistic scenario for corn in the USA: according to the USDA as of October 25 the corn harvest was 72% completed compared to only 38% last year. What should American market participants anticipate in a short-term perspective and what are your forecasts regarding the quality and production of corn?
- You are correct, harvest has moved quick this year, the weather has allowed for it. Some regions of the U.S. recently had a massive cold snap with snow that delayed harvest a bit, but overall the harvest has been pretty stress free. Quality has been great this year, no major weather events during harvest to alter the traditional quality of U.S. corn. As we near the end of the harvest, the size of the crop is becoming a bit more known, the market seems to feel comfortable with yields of 178-179 and production near 374 mmt. The main function that the market is looking at is the demand profile of U.S. corn. Currently U.S. corn remains the cheapest feed grain globally well into 2021, so if demand shows, U.S. corn remains in a position to feed it.
- The US is a TOP corn market player, and there is a strong demand on US corn from China. Do you think China will be able to fulfill its obligations under the trade agreement for the purchase of agricultural products from the USA this year? With whom American traders will be competing for main target markets during the SH of the season?
- If you look at the pace of which China needs to buy U.S. goods (https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods) you can see that they still lag significantly the pace required, but their efforts have not gone un noticed as U.S. exports still remain well ahead of last year and the year before, which has translated into higher prices.
Per soybeans, exports remain at 78% of USDA target, this nearly +1 bbu vs LY and exceeds the pace by 447 mbu, (this all +145% vs LY). The current export sales number already exceeds that of the annual exports in the last 2 years! For U.S. corn, exports remain +449 mbu YTD and 276mbu above the pace needed (+168% vs LY) and 52% of the current USDA forecast. As far as corn competitors, this mainly will be found with Argentina as they are set to harvest in March/April/May, so you can see why the U.S. remains in a good export position.
- How do you think will the situation develop in Black Sea region, particularly in Ukraine, considering the lower than expected corn production and export potential? What market changes regarding this situation can be expected in the SH of 2020/21 MY?
- Yes, the shortfall of the Ukraine corn has numerous ripple effects in the global markets. First, we all know the EU has their import needs met by Ukraine supplies, so if the EU cannot satisfy their 24 mmt import needs from Ukraine, then whom will they buy from? They can’t buy U.S. given the GMO status of its corn. Will we eventually see those who bought Ukraine origin resell it to the EU and shift to U.S. origin? Its also clear that EU wheat can work itself out of the export picture to help keep wheat domestically to help substitute that of corn demand. All this has global implications on wheat-corn spreads across the various markets and exchanges, corn really should price itself as wheat? The job of the market for the LH of the year will be to ration Ukraine corn demand, if this is not already in the process. Also, you must consider, the higher the price the higher the plantings expectations for 2021/22.
- Conab experts forecast high production in Brazil in 2021, despite the potential delays in safrinha corn planting. Also, rather optimistic corn production is forecasted in Argentina, however, we should consider the general weather factor influence on corn production in South America. How can these forecasts effect the redistribution of power in the corn trading sector?
- Very good point, yes S.A. weather holds extreme importance for the global markets this year. We all know U.S. soybeans remain very tight this year amid China demand, and now with the planting delays and fears of further Brazil weather issues, the risk remains of an even tighter c/o situation in the U.S. The later the soy crop gets planted, the more risk the safrinha production holds as well. All this puts extreme scrutiny over Brazil weather over the coming months, and history tells us it will be hard to see ‘perfect’ weather. The same goes for Argentina, and this via short term has a higher influence on the corn market. Argentina is experiencing La-Nina this year, which typically produces below normal rainfall, which can spell trouble for production levels.
- COVID-19 pandemic had a strong impact on ethanol market in the US. What are your expectations of this market segment development, taking into account the low production and stocks of the product?
- COVID indeed had an impact on the ethanol markets, as drivers drive less you have less gasoline demand, which spills into decreasing ethanol demand. Even though stocks are at four-year lows, production levels given demand destruction still remain below pre-COVID levels and this likely to remain until COVID vaccines come out to provide some confidence to consumers. Consumers have developed many new habits, so it might take some time to see demand profiles come back to normal again. The resurgence of COVID just recently continued to paint a bleak energy outlook once again.
- What are your expectations of the global corn market trade in the SH of 2020/21 MY? What will be the main factors influencing the price formation?
- To me, the main function is what does China do? Will they increase their TRQ? If so, this plays directly into demand for the U.S, this in my opinion would exceed that of La-Nina impacts from Argentina. Another factor of course remains COVID implications as we get into winter months. A factor for spring months will be planting intentions for the 2021 crop year.
- How do you estimate the degree of influence of geopolitical factors on the development of the agricultural sector in general, and on the corn market in particular in the current year?
- I think in today’s world, geopolitical events have only increased significantly in importance. Money flow/speculators are watching this and trading this per energy prices, global equity prices, FX prices and commodity prices as well. All the markets are interconnected these days, so its an important factor to consider. Global cash markets might be influenced the greatest though, as geopolitical events would impact regional cash markets the greatest, then followed by futures contracts. Otherwise, the geopolitical even watched is still U.S.-China relations. Most markets also know that the U.S. holds the upper hand given they hold the exportable supplies that the world needs for corn and if S.A. weather poses other threats/fears they also remain with the needed soy supplies as well, even though that would be at a higher price. In the midst of COVID, I am sure there are numerous regions of the world that are focused on food security vs causing a geopolitical disruption right now.
Interviewed by Polina Kalayda
