USDA revises US production data of corn

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     Porto Alegre, September 14, 2021 – The USDA’s September report is adjusting the reality of the local crop to events. Some reassessment of planted area is normal, even more so in the case of productivity projections. This year, with the several private numbers pointing to slightly better productivity than projected in August, USDA confirmed a crop closer to 380 mln tons and a less delicate situation in terms of local and global supply. This barely changes the overall picture for 2022, and the focus remains on China and its import potential. The point that really surprised in this report is the projection for Chinese imports, which, even with a record crop, would keep imports equal to 2021, according to USDA.

     After so many disputes, the US crop in 2021 is getting a definitive design. The final production number is only closed in January, so until then corrections will be made in any direction. USDA, in this September report, brought a slightly larger-than-expected area, from 92.7 to 93.3 mln acres. If the initial view was that the area to be reaped would be smaller due to the larger portion destined for silage rather than grain, USDA ended up increasing the area to be reaped.

     The other point is productivity. After the Pro Farmer crop tour, there was a certain consensus that average productivity would be better. USDA confirmed this improvement to 176.3 bushels per acre against 174.70 bushels forecast in August. It is not record-breaking productivity but is very close.

     With a crop of 380.9 mln tons, the US market will have a natural and seasonal harvest pressure for the next 60 days. Prices on the Chicago Board of Trade (CBOT) even tested levels close to USD 5.00 a bushel in the December contract. As the CBOT had predicted part of the data in this September report, it ended up still balancing itself above this level at the end of the week. One of the issues, of course, is ending stocks, regardless of the size of the 2021 production. Stocks were revised from 30 mln tons in the previous report to 35 mln tons, remaining very low to support exports and domestic demand until the 2022 season in September next year.

     In this case, we remember an important point for CBOT prices already mentioned in our newsletters, that is, the profile of imports from China until next year. The Chinese picture showed a correction of production to a new record of 273 mln tons, which coincides with private comments from companies present in China. The demand for 2020/21 is projected at 285 mln tons and for 2021/22 for a new record of 294 mln tons. Thus, it was surprising to see production being increased from 268 to 273 mln tons, while imports in 2022 remain stable at 26 mln tons, equal to 2021.

     What really matters now is the pace of US exports. Weekly shipments are still very discreet, partly because of problems in the Gulf of Mexico, partly because global demand is still receiving Argentine and Brazilian corn and not boosting purchases of US corn. Prices below USD 5.00 a bushel on the CBOT may drive more concentrated global demand on the United States. However, the main medium-term factor is China’s resumption of purchases of US corn. China has not bought US corn for the last 120 days. Could the difference in prices between the Chinese domestic market and the US market make this resumption of imports feasible? The fact is that if China does not restart importing until December, there will be a very negative impact on CBOT prices. The weak export pace by Brazil, compared to normal, and reduced offers from Argentina may help the US corn sales in the coming few weeks. But the market needs to see weekly US exports jump by 2 mln tons.

     In the European framework, there were no major changes for corn. The bloc maintains its forecast of imports for this 21/22 business year at 15 mln tons, even with Ukraine pointing to a record crop of almost 40 mln tons. The high world price of wheat could be another factor in increasing this regional demand for corn and perhaps accelerating import needs.

     From the perspective of prices on the CBOT, the most significant impact now is on the US harvest of 380 mln tons in its domestic market and with normal reflections on future prices. The second point is the weekly pace of US exports. A volume below 1 mln tons a week should be considered weak to reflect great export performance again this business year. If China does not return to purchases, the global market will need to have buying strength to prevent corn from going back to USD 4.70, perhaps losing this support still in 2021.

     Agência SAFRAS Latam

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