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Corn Prices Remain Strong Despite Recent Headlines & More Frost Damage in Brazil

Updated: Sep 13, 2021

Update for July 21st, 2021

There are so many negative headlines for corn right now, seems like a new one pops up every few days. What’s encouraging though is that the market seems unfazed by the various news releases. Yesterday a bipartisan group of Senators introduced a bill named the Corn Ethanol Mandate Elimination Act. Senators Dianne Feinstein (D-CA), Pat Toomey (R-PA), Bob Menendez (D-NJ) and Susan Collins (R-ME) will face massive opposition from representatives of Corn Belt states as they ask for an end to the mandate that says other biofuels have lower greenhouse gas emissions and argue that this bill would help to reduce carbon emissions. Feinstein stated, “ The federal corn ethanol mandate no longer makes sense when better, lower-carbon alternatives exist. It’s time to end the mandate and instead support more advanced biofuels and biodiesel that won’t contribute to climate change or drive up the cost of food.” The Advanced Biofuels Business Council does not support this bill and their Executive Director, Brooke Coleman stated, “This proposal does nothing for advanced biofuels and we do not appreciate being used to greenwash a top priority for a handful of the dirtiest oil refineries in the country.” Thankfully the bill has little chance of passing as representatives from all corn growing and ethanol producing states will oppose anything that would be detrimental to their constituents.

Last week a U.S. appeals court heard a case that had been filed by various environmental groups regarding the EPA’s failure to follow proper channels in regards to the RFS and biofuels. The court found that the EPA violated the Endangered Species Act when they failed to confer with the U.S. Fish and Wildlife Service as well as the National Marine Fisheries Service prior to setting the biofuel blending obligations for 2019. What this ruling does is require that the EPA reassess their 2019 decision regarding renewable volume obligations.

What seems to influence market price direction most, right now, is weather. Outlooks through the end of July and into early August are showing little opportunity for precipitation in the driest areas of the country while other regions are receiving average to above-average precipitation. These weather issues appear to be the markets biggest concern at this stage of the growing season vs the all the “noise” we are hearing right now in regards to ethanol.

Frost damage to Brazil’s Safrinha crop is becoming more apparent as time passes which has gotten the attention of traders. Dr. Michael Cordonnier of Soybean and Corn Advisor reports that the Safrinha corn crop in southern parts of the country received another blast of cold air earlier in the week, these cold temps are expected to remain in the area through today. Temps in the southern region of Parana have fallen into the low 20’s and frost has occurred as far north as Goias. This week’s cold temps are expected to cause additional damage to the corn crop, the later planted Safrinha corn would be similar to 3 nights of frosts across the U.S. Corn Belt in mid-July. Cordonnier says that the best of the Safrinha crop has already been harvested and estimates yields in parts of Mato Grosso at 114 bushels per acre. In the hardest hit regions of Parana and Mato Grosso do Sul the crop has been destroyed by the frosts with a yield of 0 bushels per acres expected. In northern Parana he estimates corn yields have been reduced by 70-80% and some farmers are indicating that they do not even plan to harvest their remaining crop. This is causing a mass exodus of corn contracts within the country that are written with a “washout” clause. According to the grain traders and brokers that spoke with Reuters this is could be the largest wave of export cancellations Brazil has had in 5 years. Brazil is the world’s 2nd largest exporter of corn and now much of the crop that was contracted for exports is now being redirected into the domestic market. A large U.S. grain trading firm says that the cut to exports is due to supply shortage fears and attractive prices that have almost doubled within the domestic market. Some of the corn trades that are being reversed on the washout clause were for bushels originally contracted for 40 Reais or $7.82 per bushel. Now domestic buyers are prepared to pay 90 to 95 Reais which is why so many companies are choosing to take advantage of the washout clause. The Brazilian government says that the countries second crop is expected to be 8 million metric tons lower than a year ago. They forecast that imports are likely to increase by 58% driven by strong domestic demand and project corn exports to fall by 15% to 29.5 million metric tons this season.

Too much rainfall in some areas and not enough in others has many wondering if the top end of the soybean crop yield is actually realistic. There really is no room for error and traders expect that even the slightest sign of a widespread weather issue will spark additional risk premium to be added. The month of August is critical for soybeans so expect price volatility as forecast models are adjusted.

Reuters, The Wall Street Journal and National Hog Farmer all reported earlier this week that China’s pig herd has returned pork production to the highest level in 7+ years. Several thousands of new breeding farms were developed to help revive the hog population that had been devastated by African Swine Fever and as of the end of June the pig herd had increased by 29.2% from the previous year. Currently there are approximately 439.11 million head of hogs on hand which closely compares to levels in 2017-18, prior to the onset of the ASF.

The U.S. Corn Belt is expected to receive little to no precipitation from an organized storm system for at least the next 10 days. The 6–10-day maps and the 8-14 days maps show hot and dry conditions will prevail but the GFS & EURO models (shown below) both include show chances for rain around July 30th and into the first few days of August.

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