Today, the world corn market is under the focused attention of all market participants, despite the expected record production. Will an unstable weather factor adjust the bright forecast of corn crop? How will the price develop? How will China build its procurement strategy?
We discussed these issues and many other in interview with Matt Ammermann, vice president of StoneX Group.
- Global corn production will hit the record high in 2021/22 MY. What is your estimation for corn crop size this season?
- Yes, that is correct, global corn production remains estimated by USDA at 1198.22 mmt, a fresh record. The prior record was back in 2016 at 1127.67 mmt. The lions share in this number is the U.S. and as harvest has been moving forward, yields have indeed leaned better than expected. Ukraine seems to be as expected, but this record number also factors in a sharp rebound from Brazil as last years crop was a clear devastation at 86 mmt, and a rebound to 118 mmt is expected at this point, although a lot of weather has to be traded yet. Overall it’s hard to argue strongly against the current global production figure presented by USDA.
- What difficulties the market participants will face under the expected tough competition on the market of corn amid its high production in the key exporting countries?
- Even though global corn production is expected to be a record, it’s still mainly U.S. and Ukraine as export competitors until Argentina/Brazil influence arrives in May. So yes, globally the record is there, but it’s still not fully realized as the La-Nina in South America keeps plenty weather risks current. Another growing concern can be the attitude of selling interest by farmers amid the constant focus on inflationary concerns. I know Argentina farmers know it best to stay long a commodity in such environments, but a risk would be if Ukraine and U.S. farmers adapt something similar amid inflation and soring input costs for 2022. Beyond supply concerns, the market is getting more focused on demand profiles. For Ukraine and U.S. demand that remains solely focused on China amidst other traditional markets, but also a very strong ethanol demand profile in the U.S. as well. Also it must be considered, that corn rallied quickly in the spring/early summer of 2021 and pushed feed demand to that of wheat, but now the market is working to get that demand back as the wheat markets cannot afford it anymore.
- The USA have already harvested about 50% of its corn. The production is seen the second largest on record in 2021/22 MY (381.5 mln tonnes according to USDA). Taking into account the strong dollar, how will the high corn production affect the trade and the demand for US corn? What should US exporters expect in the short-term?
- I think I touched on this in the above-mentioned questions- but yes, it’s incredible to consider such yields/production in the U.S. when we experienced numerous adverse weather events across the Midwest this year that pushed the fear, but at the end of the day genetics and some timely rains proved fully of value. As mentioned above, until the South America supplies hit the market in early summer 2022, its just U.S. and Ukraine competing and fortunately the USD is not having a massive influence in U.S. export potential for now. The USD influence has no impact on domestic ethanol consumption so that demand remains strong amid the current energy complex. The U.S. export chain was also slowed drastically to start the marketing year due to hurricane Ida, and now that the Gulf is back to normal operations, exporters are fully ready to feed demand as it comes.
- China contracted massive volumes of US corn at the start of 2021/22 MY. How do you see the demand for US corn in the course of the season?
- Yes, correct, China was very active in early 2021 to buy for the 2021/22 crop year in U.S. The USDA has total China corn imports set at 26 mmt vs 28 mmt LY, but private sources have a much lower number at 20-22 mmt due to rapid price increase, high freight and the increased wheat feedings over the summer when global corn values rallied quickly. To date it seems China already bought approved 12 mmt from U.S. and 5-6 mmt from Ukraine, this this leaves a minimum of 4 mmt left to buy and seems this will be done when new import license are provided. Looking forward into 2022/23 MY, the China demand profile still looks strong as the current harvest in China is experiencing excessive rainfall, which brings quality fear for later in the year.
- Ethanol production is declining in the USA, while the government is setting aside an issue on annual output recommendations, and the prices of crude oil are surging. What can you say about the demand for corn from the ethanol sector in the USA? Is the industry able to rebound to the pre-COVID rates?
- Ethanol production in the U.S. has indeed been on the rise- more recent data has production at 28 month highs all while ethanol stocks just recently came off 5 month lows – so demand pace has rebounded greatly from COVID and remains a pre-COVID rates. Driving demand has been steadily increasing over the past few months brining back strong gasoline demand, all this remains while crude oil remains at 7 year highs and this making ethanol margins all the more profitable.
- Last season, La-Nina sizably cut South American corn crop. What are the current prospects of corn production in South America in 2021/22 MY?
- Yes, La Nina reduced the Brazil crop greatly by 22%, the Argentina loss was not as great, but moving forward for the upcoming year we have a back-to-back La-Nina year and risk remain once again. Argentina plantings remain as expected right now, rainfall remains ok, while the safrinha corn crop will not be planted until January-March after the soybean harvest. The current rate of soybean plantings in Brazil remains the second fastest rate on record, thus the safrinha crop has a good chance of being planted earlier which allows the crop to void the peak of summer risk, and possible peak La-Nina risk. Current prospects for Brazil remains 118 mmt vs 86 mmt LY, and Argentina remains 53 mmt vs 50 mmt LY.
- Current progress of the field work and weather conditions in Brazil allow to expect the timely start of safrinha planting campaign in optimal time, and the general production of corn will amount to the record high in 2021/22 MY. How will it influence the global market and Brazilian corn export?
- Fully agree, as mentioned above given the fast rate of soybean plantings the opportunity for an early safrinha plant fully remains. A large question remains around fertilizer prices/supplies remain at that time, but right now prices are doing the work for farmers to plant to fast and the to the max on soybeans, and the same will apply to the safrinha corn crop. This will put resistance/weight on global markets, but we are a long ways from the safrinha crop from being realized amid La-Nina considerations, thus the market cannot assume that just yet. If all goes well per weather, global markets will likely be influenced by a good safrinha crop starting in late spring months.
- Corn prices increased significantly in the EU due to the limited domestic supply. The harvesting progress is much slower compared to 2020. How strong will be the EU’s demand for corn, and what factors will be key for pricing in the future?
- Much like the corn harvest delay in Ukraine, the same has been realized per France and thus prices have responded accordingly. An increased EU corn demand can remain for Ukraine supplies in the short term, but much like anything with time harvest will move along and be completed, thus the limited supply squeeze will also be solved in the short term. Per corn demand, we also must remember that the EU has an increased amount of feed wheat this year due to quality issues, thus this with time can also compete against cash corn supplies.
- The EU decreased notably the import of corn since the start of the current season. The supplies are the slowest over the last 4 years, mainly due to the limited shipments from Brazil amid low production and high prices. What are the possible changes in the volumes and geography of corn imports to the EU in the 2021/22 season?
- I mentioned briefly, but corn imports may be replaced with the increased amounts of feed wheat supplies seen this year in the EU, but also barley can be considered as well. As far as replacing Brazil import, more reliance can be found on Canadian, Serbian and Ukraine import supplies. Unfortunately Argentina imports are not possible due to pesticide restriction, and price has to do a lot of work to allow U.S. imports as its subject to a 25% import tax.
- What should we expect from the global corn market in the second half of the season? What main factors will influence the prices?
- The markets seem to feel comfortable with Northern Hemisphere supplies right now, while its La-Nina risks that drive South American supply concerns. Besides that, the market quickly remains focused on demand profiles, both ethanol and export demand initiatives. We also have a quick focus on 2022 Northern Hemisphere plantings and the impact of the rapid increase in fertilizer – this can keep the arguments alive for 2022 planting debates. Money flow will still be a factor per that inflationary trade that likely remains well into 2022.
Interviewed by Polina Kalaida
