Porto Alegre, April 12, 2021 – The USDA’s April supply and demand report brought numbers almost in line with the market’s expectations. US stocks were cut by 150 million bushels and, despite the cut, already priced by the market. However, what really surprised was the non-increase in imports by China, considering that it bought 4 million tons in March, totaling 23.2 million tons this year only with US corn. Other 6 million tons would have been bought from Ukraine. So, from this report, some upward demand adjustments, as well as the numbers for China, were the surprises for the market.
The numbers on domestic demand and some increase in the projection for exports led USDA to cut the final stocks of this US business year from 38 to 34 million tons. However, the cut came against expectations. China had bought more 4 million tons of US corn in March. Therefore, an increase in the same proportion as the projection of annual exports was expected. USDA raised the projection from a record of 66 million tons to a new record of 67.9 million tons for US exports. That is, the cut in sales to other destinations may have neutralized part of purchases from China.
However, the surprise occurred on the side of the US domestic demand, with USDA revising the demand recovery upwards again. This may have a direct relation with the position of decrease in quarterly stocks released at the end of March. The 2% decline in the US pig herd could have slowed down domestic demand in the feedstuff segment, but USDA strengthened the expansion in the feedstuff demand in the local market in this business year.
This combination of exports and domestic demand helped to cut stocks to 34 million tons. These are not troublesome stocks because the new 2021 crop arrives in September, and here lies the main issue. With such lower stocks, the production of the 2021 season needs to be 380 million tons or above so that the stocks do not fall in 2022. Otherwise, USDA will need to be restrictive in its projection of exports for the 21/22 cycle to safe stocks for next year. So, the international market must deal with two major variables:
– The weather between April and September in the US Midwest;
– Chinese demand until the beginning of its 2021 crop next October.
What really surprised in this April report was the already extremely debatable supply and demand scenario in China. Initially, we must reflect that this year China has held weekly auctions of wheat and rice stocks destined for feedstuff to compensate for the use of corn. Therefore, it is increasingly clear that stocks of 190 million tons cannot be considered reliable in a country that is trying to supply itself with other alternative commodities and making record imports. It seems clear there is a need for an obvious reformulation of this projection of stocks in China for the good progress of the international market and a more realistic picture of stocks in the country.
Another point was the maintenance of the projection of imports by China at 24 million tons. Considering that it has already bought 23.2 million tons of US origin and 6 million of Ukrainian origin this year alone, the volume indicated seems discreet or below its potential. If we consider that the next Chinese crop will only hit the market in October, there is still room for the country to make new purchases. The resumption of Chinese corn highs last week and the level above USD 400/ton reflect this possibility of new imports.
At the same time, the conditions for beginning the planting of the 2021 US crop are very favorable. Without excessive rainfall for the next 15 days across the Midwest, growers will have favorable conditions for early planting at the end of April. The main risk was a very rainy early spring. Planting, as usual, is advancing in Texas at this moment.
The week’s move with the cut in stocks helped corn reach a new high for the May maturity at USD 5.95/bushel. The test of the level of 6.00/bushel seems near if China decides to make new purchases in the short term. Thereafter, the market is concentrated on the climate and the pace of development of the 2021 US crop. For now, there are no signs of serious problems ahead, but the market will focus on biweekly weather forecasts to assess crop development.
Agência SAFRAS Latam
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