The corn export program’s rapid start has garnered attention from traders and analysts globally. With over 234 million bushels, nearly 6 million metric tons, exported in the first seven weeks of the marketing year—this marks the fourth largest week in over 30 years—there’s a clear reason for the industry’s focus.
I anticipated a robust export pace for the year, which underpinned my bullish stance on corn back in September. However, even I am taken aback by the significant surge in US corn coverage by global buyers.
Most intriguingly, this buying surge occurs amidst a narrative that suggests global corn supplies are not only sufficient but potentially excessive.
The current global corn dynamics are influenced by surging US export demand, smaller supplies, and the unpredictable role of China. The perceived absence of Chinese demand is contributing to bearish sentiment, raising questions about future US corn export demand.
This week, we focus on the commencement of the corn export program and the potential shifts in global balance sheets. We will also explore the implications for price direction as we progress.
Global Supply Adjustments
While the world supply appears ample on paper, there are indications that the USDA may be overestimating production and exportable supplies in Brazil, Ukraine, Russia, and the EU. This is based on cash market trends and insights from local traders and analysts. Poor weather and low profit margins have impacted production in both hemispheres over recent months, suggesting that further adjustments for several nations are likely in the coming months.
By country, interesting shifts are seen in Brazil’s cash corn market. Smaller production, larger on-farm storage, greater domestic demand, and logistical issues getting to port have reduced the country’s export program. Brazil’s corn exports since the start of January are down over 17.5 million metric tons or 689 million bushels from a year ago. Looking ahead over the next several months, traders say the flow of corn into export channels is likely to remain reduced. There are 5-6 million metric tons or around 200 million bushels of corn available for world buyers until May at the earliest. For perspective, last year at this time Brazil still had 8 million metric tons of corn or 315 million bushels already committed for shipment in November and was undercutting the rest of the world on price as Ukraine worked to sort out its new corridor.
Argentina’s corn exports to the global market have increased compared to last year, a result of both a recovery in production and reduced supplies from Brazil. Shipments have risen by 8 million metric tons, or over 300 million bushels, since the beginning of the year.
However, Argentina’s exportable surplus is nearly exhausted, with an estimated 5 million metric tons, or less than 200 million bushels, remaining to be shipped before new crop supplies arrive. Regarding the new crop supplies, there is significant uncertainty about Argentina’s planted area. Last year, a disease spread by leafhoppers severely impacted crop potential. Some predict that Argentina’s production could decrease below last year’s levels due to the planted area, and weather models suggest drier conditions for much of the growing season, which may cause farmers and traders to hold onto corn more tightly than usual.The global corn market is experiencing significant dynamics with surging US export demand, smaller supplies, and the unpredictable role of China.
Analysts are closely monitoring South America, particularly Brazil and Argentina, for their corn supply potential. Despite the potential for a large new crop, the earliest new crop supplies are still months away. Ukraine and its neighbors faced one of the hottest and driest summers on record, significantly impacting regional corn supplies. Local traders estimate that Ukraine’s exportable corn supply could be nearly halved from last year, with some suggesting a drop from 30 million metric tons (mmt) to 15 mmt. Even if the actual figures are on the higher end of local estimates, the USDA’s projection of 23 mmt in Ukraine’s exports might be overstated by 3 mmt or 118 million bushels.As mentioned, not only Ukraine saw reduced production due to heat and dryness. Neighbors in Eastern Europe and across Russia also faced similar conditions, which trimmed their production and caused quality issues. Speaking of quality issues, France and its neighbors dealt with excessive moisture throughout the year, resulting in a wide range of quality problems that carried over well into harvest.
Regarding other shifts, it’s not just adjustments to global supplies that may keep corn exports strong. We are witnessing some interesting shifts in global demand that lead to changes in some market structures. India is likely to shift from a 3-4 million metric tons per year exporter to an importer this year. Although 1 million metric tons of imports may not seem significant on paper, the reduction of up to 5 million metric tons in available supply means their traditional buyers are looking elsewhere.The South African export estimates from last month’s USDA report may be overstated by a million metric tons, according to local traders. This overestimation affects shipments to neighboring countries as well.
Increased global demand for corn, both for feeding and biofuel production, is bolstering Brazil’s cash corn market and creating unexpected competition among exporters worldwide. This development positions the US as the principal supplier in the coming months.
Regarding Chinese demand, some traders argue that the absence of Chinese purchases is bearish for the market. However, considering the overall global supply situation, a resurgence of Chinese demand could act as a bullish catalyst, particularly if it coincides with production issues in South America.
Analyzing the current pace of buying, the number of bushels required, and the availability of supplies worldwide, it is believed that the United States can easily meet, if not exceed, the USDA’s current export projections. This is achievable without any significant economic shock or unforeseen events, even in the absence of substantial Chinese purchases.
However, if China re-enters the market much earlier than May, they will likely have to source the majority of their bushels from the US. The impact on the overall balance sheet would depend on their buying intensity. Even if China’s involvement is at the lower end of expectations, it could still add around 400 million bushels to the US corn export demand. On the surface, a reduction in Chinese demand by 7-9 million metric tons from current estimates might seem bearish. Yet, it is anticipated that most, if not all, of this lost demand would be compensated by production reductions in other regions.The overall global ending stocks situation remains unchanged despite significant adjustments lower to Chinese demand. However, if China were to approach the market more aggressively, things could become very interesting quickly as the rest of the world seems short on physical supplies, and supplies are not as plentiful as in the past couple of years. What does it mean? While the surge in corn buying might be driven by concern over post-election events, it is more likely that the significant increase in demand is driven by pure economics and smart trading rather than anything else. The market has been signaling the world market to produce less corn while also using more, and the market has listened—with the help of Mother Nature, of course.
The global corn market is experiencing significant dynamics, with surging US export demand and smaller supplies. Despite the unpredictability of future market trends, it is highly likely that the demand for US corn from global buyers will remain strong, irrespective of China’s participation.
The potential return of China to the world corn market could act as a bullish catalyst, surpassing many current expectations. This development could significantly impact the market.
In the upcoming week, we will delve into the implications of the election on the grain markets. Stay tuned for more insights.
Should you have any questions, feel free to reach out. Wishing you a great week ahead!
