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Extremely Dry Conditions in Brazil Threaten Corn Production

Update for May 5th, 2021

Corn has been on fire! Over the past 20 trading sessions the JUL21 contract has gained +$1.50 per bushel, new crop DEC21 has added +$1.30 per bushel from the March low. The May21 contract gained +$1.70 in just 11 trading sessions between April 16th to May 3rd, this is the first price movement +$1.70 in either direction in almost 7 years! Of course, there are several schools of thought as to why we are seeing such large price increases but several sources believe that right now the trade is very concerned with the ever-worsening crop conditions in Brazil. Forecasts this morning show there is no rain in sight for the key growing regions any time soon. DTN reports that most of the nation’s corn growing regions “now have soil moisture readings of no more than 50% capacity. The only exception is a strip in far western Mato Grosso do Sul that saw slightly increased soil moisture from weekend showers.”

StoneX reduced their Brazilian corn crop estimate to 100.25 mmt. from their earlier forecast of 105.05 mmt. The current USDA estimate of 109 mmt. is expected to be revised lower next week in the May reports. More groups are likely to reduce their outlooks as well in coming days. “The month of May will be make or break for the crop.”

Recent data on ethanol exports showed an impressive surge in March of +48 million gallons to China. A few months ago, we heard that there was going to be a large increase in shipments of U.S. ethanol to China, now we have the numbers to prove it. We were also told that corn shipments out of the country were lagging and there was concern that we would not be able to export all of the purchased bushels before the end of the corn sales year. USDA reported that last week U.S. exporters shipped out 84 million bushels of corn, considerably higher than the weekly total needed to meet government targets. Weekly shipments only need to average 56 million bushels and exporters have been averaging close to 75 million bushels over the past several weeks.

The planting progress of the 2021 U.S. corn crop gained a lot of ground last week. Latest estimates show 46% is planted vs only 17% the previous week and the average of 36% for that same time. Central and western areas saw the largest gains:

  • Iowa planted nearly half of the states corn crop in just 1 week with 69% of the crop in the ground vs 20% the prior week.

  • Minnesota is doing well with 60% of the corn crop planted.

  • Illinois is 54% complete

  • Ohio is 22% planted

  • Indiana 32%

  • Nebraska 42%

  • Kansas 36%

  • South Dakota 25%

  • North Dakota 14%

High corn prices are adding more uncertainty to the amount of U.S. soybean acres that will be planted this season. Early planting intension estimates from the USDA currently sit at 87.6 million acres; outside estimates range up to 90 million soybean acres. While soybean oil has reached new contract highs Chinese demand for Brazilian soybeans is lighter than expected likely a result of current price levels. Soybean planting progress sits at 24% an impressive increase over the 8% planted the previous week. Some of the states with the highest percentage of planted soy acres:

  • Iowa is 43% planted

  • Illinois 41%

  • Indiana 24%

  • Ohio 17%

  • Nebraska 20%

  • South Dakota 8%

  • North Dakota 2%

China’s agriculture ministry has confirmed a new outbreak of African Swine Fever, this is the 10th outbreak this year. The ag ministry stated, “The epidemic is occurring in spots and no regional outbreaks have occurred”. AFS in northern China had a “significant impact” on hog production during the first 3 months of this year. While many incidents of the disease go unreported a decision has been made to divide the country into 5 zones in an attempt to control the spread, this new effort began May 1st. Reuters reports the plan will allow for the regional borders to be crossed by breeding pigs and piglets only. This is expected to cause some price discrepancies between zones with a pork surplus likely in northeast and central zones, while the large pork consumption zones in the east and south may need to import supplies to meet demand.

Much of the U.S. is forecast to receive precipitation next week. The map shows the total expected through next Wednesday, what it doesn’t show is the continuation for below normal temps for the entire central portion of the country.

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