USDA estimates production of corn in US at 380 million tons for 2021

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     Porto Alegre, May 17, 2021 – The tension over the US corn crop in 2021 happened sooner than normal because of the action of market agents in April. Climate situations that have little real interference in the planting, theories of potential productivity, and early panic in a planting process that is going very well have created a CBOT environment with prices slightly above reality. The expectation was still concentrated on this May report released by USDA, where some new variable was expected. USDA surprised by not cutting China’s import forecast for 2022, but it substantially raised the potential productivity of the 2021 US crop to 139.5 bushels/acre, well above the last record achieved. As a result, stocks for 2022 improved a little and settled down prices.

     The 20/21 cycle has coped with several surprises. Initially, of course, the pandemic and the unknown of future demand and the business future in the international environment. Then, the US crop losses with the strong storm that occurred in Iowa on August 10, 2020. Finally, the surprising Chinese demand that started in August last year caused intense price volatility on the CBOT given the high volume and the speed of purchases. This set of indicators brought prices from USD 3.50 to 6.50/bushel in the past few months.

     Tension increased when soybean prices also advanced to very high levels, jumping from USD 9.00 to 16.00 a bushel. This caused a greater competition for the area to be planted between the two commodities in the United States and an adjustment in the tension environment due to lower ending stocks. The need for a normal crop in 2021 may have generated a price framework above reality for the current situation. For example, corn prices for the May maturity reached USD 7.50/bushel, the highest level since the crop losses in 2012, which were the highest in the US history. As we pointed out in our last issue, prices were very high for the current situation of stocks. 34 million tons are not critical stocks for corn and could easily meet the US supply until September.

     The USDA’s May report, the first of the 21/22 business year, would indicate the balance or not of this supply in the next business year. USDA actually cut stocks for the current crop to 31 million tons, against 34 million of the current report, and lifted exports to record 70.5 million tons. These record exports stem directly from the sales to China, which are far from the normal curve.

     Until August, the US sales may still show some surprises, since last week alone China bought almost 5 million tons. Until September new significant purchases may occur and cause a new cut in the US stocks.

     USDA projected the new US crop at 380 million tons. However, it started from an optimistic productivity projection of 179.5 bushels/acre, 3 bushels above the record of 176.4 bushels/acre. Is that possible? Undoubtedly, especially considering the technology applied in local crops. However, it seems optimistic before the pollination and silking phase in July is confirmed as favorable. Besides, after intense comments about the lack of rain and dry soil in the west and north of the corn belt, less optimism was expected about production. USDA seems to have ignored this variable.

     With production projected at 380 million tons, the discussion must shift to demand. In this item, the projections remained optimistic even for the ethanol segment. The 2022 exports were reduced to 62.2 million tons relative to 2021. At this point, some evaluations deserve attention. In 2020, the US crop could have been a record. However, the pandemic situation contained the advance of planting, and areas stood below expectations. Technically, with the planting in a good window, as has happened in 2021, potential productivity must be good, and it seems natural that a region that applies high technology has higher productivity potential. However, with the west and north sides of the Midwest drier and in need of rain, this projection could have been contained.

     In any case, the projection of production is not an abnormal crop and vulnerable to losses provided that the weather is perfect until August. Now, the focus is on the assessment and planted area on June 30, and, as always, the weather progress.

     The point under discussion for this report was China’s import trend. Despite maintaining stocks of 198 million tons for China, USDA adjusted the import number for the current business year to 26 million tons and maintained this projection for the next business year. USDA was slightly more conservative in the forecast for the Chinese crop with 268 million tons, only 8 million above the current crop. What is really worrying is the misinformation about the real corn stocks in China. The planting in China is taking place with an optimistic bias towards higher technology use and a 3% larger area for a crop that will be reaped from October.

     For Europe, USDA brought lower imports for 20/21, reduced from 15.5 to 12 million tons. Certainly, the pandemic situation and African swine fever in the east of the bloc affected this regional demand. For next year, the expectation is for the resumption of imports to 16 million tons.

     After this report, however, the prices of corn and other commodities on the CBOT were severely pressured. Strong losses in iron ore, soybeans, wheat and corn. At first, as we pointed out in our previous issues, the rise in corn prices seemed to be exaggerated. This is due to the fact that corn was reaching the 2012 levels when the US crop lost one-third of production, that is, 100 million tons, which were the biggest losses in history. The May contract is being settled around USD 7.50/bushel, the same level as in 2012. However, thus far there has been no loss in the US crop to support such prices in 2021.

     So, it seems that the market waited for the USDA’s report to cut excessive prices, causing a decline of USD 0.70/bushel in just two days. The decline was not justified either by any real or solid information that could justify strong profit-taking. Only the version of private companies that have always shown numbers not in line with those from USDA affected prices last week. Some estimates pointed to a giant corn and soybean acreage in the US, ignoring most market versions. Corn with 5 to 6 million acres and soybeans with 900,000 acres above the planting intentions in March shook the corn market last week.

     The number for planted area is only released by USDA on June 30. There is no clear sign that there would be such an increase in planted area in relation to the planting intention report, and it seems to us a little naive on the part of the market to base itself on an estimate of this magnitude while the planting is underway. It is natural that the number of planted area on June 30 comes out with some correction in relation to the planting intentions. However, additional 5 million acres are at least bizarre figures and intended to trigger market movements.

     The fact is that planting in the United States is going well, within an ideal window, and there is still no sign that the US crop may have climate problems ahead.

     Agência SAFRAS Latam

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