International market of corn continues driven by China

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         Porto Alegre, March 16, 2021 – The international corn market continues to observe the climatic situation in Argentina and the potential problems with little rains in March. However, the main reference is the buying movement by China in the US market. With price lows in the Chinese market, prices on the CBOT have also dropped, since that may be signaling a decrease in purchasing needs by this new big buyer of corn.

         The key point now is the release of the Planting Intention report, by USDA, on the 31st. The consensus seems to point to a division of the expansion of the planted area between corn and soybeans. Then, we will move on to the beginning of the climate picture for the 2021 crop.

         The USDA’s March report brought no surprises to the US picture. The market was betting on some cuts in stocks, but USDA did not see a necessary environment in demand and/or exports to cut the current stocks, which are at 38 million tons. It is important to note that such stocks are considered healthy to keep the US market supplied until the beginning of the new crop in September. Moreover, there are still good stocks of old crop corn in the hands of producers, who can begin to decide on sales at the moment they see the planting progressing normally in May.

         At this point, there is the issue of the Argentine crop. March has been a dry month, mainly in the Buenos Aires province, the main producer of corn and soybeans. Growers are still making their decisions on soybean production and, therefore, there is still strong price volatility and expectations about production, which is already being cut. Rain is forecast for this week in Argentina. If confirmed, it can ease tensions over the size of the local crop. Otherwise, soybeans may surge again later this month.

         This movement is important due to the exchange ratio between corn and soybeans in the US planting decision. An additional loss of soybeans in Argentina and a new surge in this commodity on the CBOT could prevent corn from recovering some area. An area close to 91 million acres in 2020 would need record productivity to replenish final stocks for 2022. In other words, a perfect planting and optimal weather conditions in July and August. This shows that the dispute for area is intense, and high prices of soybeans become an impediment to a strong area recovery for corn. Of course, if the US growers choose a larger planting area with corn, the scenario will likely be bearish for corn and very bullish for soybeans.

         Besides this movement of planting decisions in the United States, there is the environment of Chinese demand. After the long holidays in China, the local market brought down corn prices. Strong intervention by the government in the sale of wheat stocks and the heavy shipments of US corn help to curb the price situation in China, which reached records in this first quarter. So, after heavy imports, some price slowdown is normal. There is a discussion derived from US private companies regarding the production of pigs and a potential new cut in plantations due to an outbreak of ASF – African swine fever. One situation is to use females that are not matrices genetically improved for production, which brings a worse result in birth rate. Another situation is the loss of production due to a disease outbreak. The has not yet been confirmed by the OIE. Therefore, so far, it seems that this information has no support for confirmation.

         Last week, Genetics company Genesus Inc. released a new story about ASF and its consequences on the herd of matrices in China. Some highlights of the news are: “African swine fever will affect China for many years. China is estimated to have lost between seven and eight million matrices in the last outbreak of the disease for the last eight weeks. With recent announcements of new ASF outbreaks in the country, 2021 imports must exceed last year’s meat import volume.” This picture, however, seems far from being confirmed, especially when taking into account the data released by the Chinese government and USDA. Therefore, this trend has not been confirmed.

         Last week, a futures market analyst working with COFCO, the Chinese government’s meat-buying department, said the damage caused by the epidemic this winter was much more serious than that of last year, estimating that 20% of sows in northern China have been affected, and up to 30% in sections of southern China.

         Another consulting firm, Yongyi, said that the number of matrices in China in January and December sharply fell, estimating that the overall number of matrices dropped 37% compared to the pre-ASF levels. “So, what led to the estimated loss of 7 to 8 million matrices for the last eight weeks? There were two factors at play,” said Quilty. Two new strains of ASF have emerged due to the use of illegal (less effective) vaccines. “The final result is that now highly virulent strains have emerged and, moreover, there has been a natural mutation in ASF.” “After large Chinese pig super plants were built for the past two years, absorbing the country’s pig herd from smaller breeders, the overcrowding with animals has paved the way for the spread of diseases.”

         “There were also a number of other reasons why Chinese pork production started to cope with difficulties. Poor genetics and small brood size caused real problems. This was partly because the females that were supposed to be used for pork consumption were now used for breeding. The result is lighter-weight carcass and smaller piglets. Moreover, ASF has never stopped, and other diseases have also spread, such as SARS and foot-and-mouth disease, which continue to devastate Chinese pork production,” said Quilty.

         The news draws attention given the pessimism surrounding the loss of the herd of matrices in China, which would cause a price collapse in the interior of China, which is not seen at this time. The prices of live pigs in China opened the year at 34.80 yuan per kilogram and ended the first week of March at 29.82 per kilogram, down 14.3%. This period covers the weeks in which the loss of animals is mentioned in the interior of China. Another point that calls attention is that the notifications of ASF cases in the OIE are quite discreet and do not justify this reported loss. The OIE did not release its fortnightly report last week, which ended up making room for speculation.

         The USDA’s report released now in March is another counterpoint, considering that the number of matrices in China has risen from 34 to 42 million head. The disparity of information reinforces the need to carefully monitor the price curve in the Chinese market, added to the performance of exports among the main players in the meat sector, that is, Brazil, the European Union, and the United States.

         All this information game related to China absorbs the tensions about the trend of decline in meat sales to China as a result of a sudden recovery of the herd, as well as of the new pattern of demand for corn and soymeal, which involves the size of potential imports of these two commodities by the country.

         Agência SAFRAS Latam

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