Global corn market: drought in the Northern Hemisphere vs. Brazilian records




Currently the key corn producers in the Northern Hemisphere are gradually starting to harvest corn. At the same time, the formation of the grain crop took place in difficult conditions. The summer drought of 2022 was one of the worst in European history. It has significantly reduced the prospects for grain production, which will increase the EU's dependence on imported corn. Drought conditions are also observed in the US, where crop conditions are falling and production and export prospects are deteriorating. In the southern hemisphere, a record corn crop is expected in Brazil, which, apparently, will have to compensate for the reduction in shipments from other key supplier countries.

In 2022, the EU countries faced very difficult weather conditions. According to EDO (European Drought Observatory), Europe is experiencing the worst drought in the last 500 years, which, among other things, negatively affects the yield of many crops, primarily corn. In their latest report, EDO experts report that more than two-thirds of the EU is in a difficult and extremely difficult situation.

Due to a prolonged lack of rainfall and high air temperatures, in August MARS report, the EU corn yield forecast was lowered by 8.5% compared to July expectations to 6.63 t/ha. This figure is 16% lower than the average annual level over the past 5 years.

As a result, at the end of August, the European Commission lowered its forecast of corn production in the EU in 2022 by 10% compared to previous expectations to 59.3 mln tonnes, which is the lowest figure in the last 7 years. A few weeks earlier, the European Commission had already reduced this forecast by 8%. It is noted that the latest downward adjustment was made due to the low grain yields forecast in Romania, France, Bulgaria and Hungary.

The USDA in their August report lowered the forecast of corn crop in the EU this season by 8 mln tonnes, to 60 mln tonnes, while Strategie Grains expected a much more pessimistic result – 55.4 mln tonnes the minimum over the past 15 years.

In particular, the French Ministry of Agriculture predicts a decrease of corn harvest by 18.5% y/y to 12.7 mln tonnes, which is also 9.1% lower than the average production over the past 5 years. In addition to the expected significant reduction in yields, grain production will also decrease amid a reduction of the planted area by 900 thsd ha per year. The most pessimistic forecast was voiced by Agritel analysts, who believed that the production of French corn in 2022 will drop to a minimum in the 21st century at 10.8 mln tonnes.

At the end of summer, French farmers have already started harvesting crops. As of August 29, grain was threshed at 1% of the planned territory. A year earlier, the harvesting campaign had not yet begun, and in general, the progress was 12 days ahead of the annual average. As for the crop conditions, it is steadily deteriorating and by the indicated date only 45% of corn was in good and excellent condition, while a year earlier this figure was 91%.

In Romania, according to the Ministry of Agriculture, more than 430 thsd ha of the total planted area under grains and oilseeds have been affected by the drought, and the most difficult situation is observed for late crops, in particular corn. The USDA predicted a 27% decline in the country's grain harvest to 10 mln tonnes. Romania is the largest exporter of corn among the EU countries, and such a significant decline in grain production will significantly limit the export potential of both the country and the entire bloc. Back in July, Romanian Minister of Agriculture Petre Daea said that the country would first of all take care of domestic needs, and surplus products would be sent for export.

In Germany, the Ministry of Agriculture predicted a decrease of harvest by 21.5% y/y to 3.5 mln tonnes. Analysts from the German DRV group of agricultural cooperatives voice their forecast at 3.6 mln tonnes.

The Ministry of Agriculture of Hungary also reported that there was a high risk of losing part of the corn crops, and the gross grain harvest might be the lowest since 2010.

Against the backdrop of a decline of corn production, forecasts for its imports to the EU in 2022/23 MY are being raised. Thus, the European Commission raised its forecast from 116.5 mln tonnes to 20 mln tonnes, the USDA from 16 mln tonnes to 19 mln tonnes.

A number of experts believe that the EU countries will cover the demand for imported corn mainly at the expense of Ukrainian grain. Thus, Argus Media analysts expect that in 2022/23 MY the EU will purchase about 13 mln tonnes of corn from Ukraine, another 5 mln tonnes will be delivered from Brazil. They see the total import of corn to the EU at 23 mln tonnes. The European Commission expects the supply of corn to the EU in 2022/23 MY at 20 mln tonnes, USDA at 19 mln tonnes.

However, the prospects of Ukrainian product export will mainly depend on the military situation in the country, pace of shipment from seaports and the production.

Speaking about the shipment from ports it should be mention, that both officials and some analysts report the prospects of increased monthly delivery from three unblocked sea ports – Odesa, Chornomorsk and Pivdennyi – up to 3 mln tonnes. Moreover, currently Ukrainian government works to develop the “grain initiative” and to include Mykolaiv sea port. However, in this case the question of security is crucial. 

In general, current forecasts of Ukrainian corn export in 2022/23 MY vary considerably. UGA analysts forecast the exports at 10 mln tonnes only, at the same time USDA – 12.5 mln tonnes and IGC – 15.5 mln tonnes. APK-Inform analysts suppose, that even under the pessimistic scenario Ukraine can export 14.5 mln tonnes of corn.

Apart from Europe, drought is also observed in the USA. As a result, corn crops condition is constantly deteriorating. By the end of August, the share of crops in good and excellent condition declined to 54%, which is noticeably lower compared to previous years.

USDA analysts in August Report cut the forecast of corn production in the USA in 2022 to 364.7 mln tonnes which is considerably lower than last year (383.9 mln tonnes). At the same time on August 29 ProFarmer published its crop-tour results, according to which corn yield figures were lower than those announced by the USDA experts a few weeks earlier. According to the crop-tour results, corn harvest in the USA was forecasted at 349.5 mln tonnes.

The export of American corn in 2022/23 MY USDA analysts forecasted at 60.3 mln tonnes against 62.2 mln tonnes last year. Due to deteriorated condition of corn crop the further decline of production prospects is possible which can lead to lower export potential. 

Corn conditions was worse than last year in Argentina, where harvesting campaign-2021/22 has been completed. According to Buenos Aires Grain Exchange the harvest areas under the grain totaled 7.44 mln ha and production – 52 mln tonnes (down 3 mln tonnes y-o-y).

The most favorable situation is in Brazil, where corn production can reach record high. USDA analysts forecast 2021/22-crop production at 116 mln tonnes, whereas the Ministry of Agriculture – at 114.7 mln tonnes.

Currently Brazil is completing the safrinha corn harvesting (second corn crop, which mainly forms the entire corn production). This year harvesting campaign moves faster than last year. The field works have been completed by 90%. Particularly, in the states of Mato Grosso and Goiás the harvesting campaign was finished and in Parana – 84% completed. At the same time, in the state of Mato Grosso do Sul corn harvest is quite slow because of unfavorable weather conditions – cold and wet weather slowed down the drying and harvesting of grain.