Porto Alegre, October 13, 2020 – The report from the United States Department of Agriculture (USDA) for October was expected to have adjustments to final stocks. Owing to the quarterly stocks report, released on September 30, the downward correction of stocks was inevitable. However, the market still expected some downward correction for productivity, due to production adjustments in Iowa and yield confirmations as the crop moves forward. USDA did not bring an additional cut for productivity, but it cut the acreage, which surprised the market.
The USDA’s October report showed a technical trend of correction for the final stocks of the 2019/20 business year, which ended in August. The U.S. business year starts on September 1 and ends on August 30. The quarterly stocks report, released on September 30, reflects the carryover stocks from one business year to another. USDA estimated that these these stocks amounted to 57 mln tons and were corrected to 50.7 mln tons due to the quarterly stocks data. This means that the demand of the previous business year was higher than expected by the Department.
Of course, a correction in the stocks of the old crop imposes a correction for the new crop. The stocks for the 2020/21 business year was expected to hit 63.4 mln tons last month. USDA has now brought 55.1 mln tons. The cut in stocks was additional since there was a reduction in the planted area of ??this crop, from 92 to 91 mln acres. The production, now estimated at 373.9 mln tons, is slightly lower than the 378 mln tons forecast in September. However, it is still a big production and sufficient to meet any additional local or international demand.
Despite this comfortable position of stocks, corn prices on the CBOT have gained momentum with levels near USD 4.00/bushel reflecting more the psychological impact of the cut in production and stocks than a delicate supply situation. We believe that the market has already priced all the variables in this adjustment in production and stocks, and there is little room for more aggressive highs on the CBOT. The point of attention is the flow of capital from the financial system to the commodities markets. Leverage of extraordinary prices without fundamental support can occur because of the capital movement.
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