Porto Alegre, October 19, 2021 – The October report from the United States Department of Agriculture (USDA) brought the surprise of a record soybean crop, which somewhat contradicted the vision of drought losses, as well as the slightly upward correction for the corn output. At this point, the market expected yield cuts for corn, but USDA brought record yield. We imagine that a normal weather condition in the US Midwest could have brought really high yield levels compared to what happened in 2021. With a bigger crop, USDA also raised the projected ending stocks by 2 million tons and could have brought a bearish consolidation for this US harvest period. However, Chicago resists to more significant losses and keeps betting on US exports as a support point.
The USDA’s October report regarding US supply and demand again contradicted the market. A yield cut to 175 bushels/acre was expected, but the report brought a record yield of 176.50 bushels/acre. Of course, the production data will only be closed next January, and new adjustments may arise. However, despite the problematic climate situation this year in part of the Midwest, crops results have been better than expected. Production showed a small correction, from 380.9 to 381.5 million tons, which actually barely changes the situation of local supply this business year.
However, there were corrections in the domestic demand environment, with cuts in the feed segment, and there is still no recovery for new demand growth in the ethanol segment. Increased oil prices impose higher demand for alternative fuels such as ethanol and biodiesel. The balance came with the increase in the projection for exports to 63.5 million tons against 62 million previously forecast. The volume is below the 70 million tons of the previous business year, but that is still significant from the point of view of ending stocks, now forecast at 38.1 million tons against 31.4 million of beginning stocks.
It is at this point that the market ends up gaining an environment that is still supportive. The rise in oil does not allow a decline in the demand for biofuel. Furthermore, with Ukraine having sharp price highs, Argentina paralyzing export registrations, and Brazil with small availability, the market believes that the flow of US exports will grow from now on. Moreover, wheat stocks have plummeted again and are restricting further pressure on corn.
Weekly sales once again surpassed the level of 1 mln tons, but that still does not seem to be strong enough to meet the USDA’s annual projections or sustain prices above USD 5.00 a bushel. However, most players believe that these volumes will easily surpass this weekly level going forward.
In the export environment, the market is still betting on the resumption of purchases by China. USDA has increased the Chinese stocks again (a figure that seems to have no more relevance for the international market) to 209 million tons. It did not change the production projection, which is at 273 million tons, or the demand forecast to the record level of 294 million tons.
Agência SAFRAS Latam
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