Update for May 21st, 2021
Chinese buyers have rocked the U.S. corn market over the past several business days purchasing 321 million bushels for delivery during the 2021-22 marketing year, that begins September 1st. This secures 1/3rd of China’s corn needs from the U.S. for next season and equals the entire corn production in 17 states plus there are rumors we may see more purchases in the near future. These recent sales have started earlier than they did last year but fall within the scope of market expectations. Some analysts are beginning to wonder if Chinese buyers have made some short-term changes in their buying strategies and have now become “quantity” buyers-making purchases each month regardless of price vs “price” buyers-making large purchases on price breaks. Regardless of why or if we are seeing some pattern changes in Chinese buying the fact is they are still actively buying U.S. corn and that is really the bottom line. The trade and USDA have all been cautiously optimistic regarding the aggressive orders from China because they have been known to cancel orders but through early May only a few old cargoes have been cancelled.
Last week’s USDA WASDE report has brought a rather bearish reaction in the market. Following the report corn, soybeans and wheat July contracts have all retreated off from their highs. Jerry Gulke, President of the Gulke Group says that many times with big reports like the one last week, it isn’t so much what numbers the USDA reports but how the market reacts to the data. “We were long overdue for a correction. The crop report didn’t lower this year’s corn carryout as much as the trade thought they should, and they actually increased carryover for the 2021-22 (the crop that’s growing).” Gulke says, “Everyone knows there is more corn planted out there because those phantom 4 to 6 million acres went somewhere. So, we could be looking at 93 million acres of corn. With that, we could be near 2-million-bushel carryout again.” He believes that the negative market reaction we have seen since the report is due to the fact that the markets now know what planted acres will be this year. Gulke also pointed out the extreme volatility in the market right now and the pressure this puts on producers. “A million -bushel corn producer saw profit drop $880,000 during the week. A lot of people who eat food everyday don’t understand the kind of volatility we face.” He has some advice for producers that are reluctant to make sales decisions during weather markets. Probably the most important recommendation and most difficult for many producers is to try to remain proactive and flexible even in this kind of market.
Some of the numbers Gulke suggested do not jive with figures from other many other analysts. If the trade is correct and we are looking at a potential increase of 4 to 6 million corn acres above the USDA’s early estimate of 91.1 million we are talking 95 to 96 million corn acres this growing season. If these acres hold true and the weather cooperates, we could be looking at adding +700 to +900 million bushels to the U.S. balance sheet. But if we continue to see big corn sales to China and ethanol demand stays strong, we will be able to use up those extra bushels.
The weather outlook for the next 2 weeks in key corn growing areas in southern Brazil is for some late season rain while key areas in central Brazil are predicted to remain dry. The rainfall could offer some relief to the later planted acres but it could be too late for the earlier acres. Precipitation in these important growing regions will remain an important topic as traders continue to debate the size of this season’s crop. Typically, the 2nd or Safrinha corn crop is the larger and most crucial of the corn crops grown in Brazil each calendar year. AgroConsult, a well-respected private group has estimated total corn crop production for Brazil at 91.1 MMT. This is considerably lower than the most recent USDA estimate of 102 MMT and CONAB’s estimate of 106.4 MMT. AgroConsult attributes the major cut of -15% from their March estimate (78.3 MMT) to the severe and widespread drought conditions found in the countries key growing regions.
Grain exports out of Argentina are on hold while port workers are on strike due to a lack of availability of the COVID vaccine among its members. The union issued at statement saying they plan to continue the strike until sometime late Friday. Dry weather has also caused low water levels in rivers which is restricting load capacities which is hampering activities of meal and corn exporters.
Ethanol production has almost returned to pre-pandemic levels. The weekly ethanol production report showed production reached 1.031 million barrels a day an increase of 5.4% on the week, only -3.6% off from this same week in 2019. While ethanol stocks are up, they continue to sit at their lowest seasonal level since 2014. Even with high corn prices margins for ethanol producers has remained (mostly) profitable as ethanol prices have also increased.
Eastern Corn Belt regions that had been receiving excess precipitation over the past few weeks are forecast to see drier conditions over the next week. Western and northern areas including Iowa, South Dakota and North Dakota are expecting rainfall, some spots are predicted to receive 1-2 inches during the next week.
Rainfall during the past 2 months has had an impact on drought levels and percentage of coverage.
NOAA just released their 3-month outlooks that include June-July-August. The summer of 2021 looks to be hotter than normal for most of the nation while only the far eastern states are forecast to receive above normal rainfall.