Chances for rainfall in Argentina, Chinese import uncertainties, much more competitive exports from Brazil and Ukraine along with favorable harvest conditions in Brazil have raised some concerns in the corn market. It might seem odd that soybean harvest in Brazil going smoothly should have any effect on U.S. corn prices, but it can, and it has. A timely soybean harvest means the Safrina (second crop corn) will get planted early to on-time leaving the door wide open for the possibility of record yields. Government data from Conab shows that the expected summer grain production coupled with the huge soybean crop soon to be harvested will surpass all storage capacities for the first time in 20 years. We know that China is an imports wild card especially given the strained relationship between the two nations, and the latest Chinese customs data confirms this. U.S. exports in December 2022 fell by 35% vs the same month a year earlier. But stronger than expected outside investments in commodities and stronger corn exports to other nations have helped support prices.
Argentina’s weather has turned wetter. Widespread rainfall totals of 1.5 inches are forecast between now and January 28th some isolated areas could see up to 4 inches. This country is in the midst of their worst drought in 60 years and most key growing areas have received half of their normal precipitation since October 1st (illustrated in the second map)
Farm Futures magazine surveyed 560 farmers across the U.S. between November 28th and December 30th regarding their acreage intentions for spring 2023. The results show an increase in corn acres from 88.6 million in 2022 to 90.5 million this season, a 2.2% increase. Soybean acreage is projected to increase by 1.7% from 87.5 million in 2022 up to 88.9 million for the 2023 growing season.
Exports leaving Ukraine are being delayed near Turkey as they await travel approval and inspections as agreed to in the United Nations Black Sea grain exports deal. The four parties involved include Russia, Ukraine, Turkey and the U.N. which together are required to inspect the shipments, but this is inefficient and has caused a backlog of over 100 ships. In a statement, “The United Nations urges all parties to work to remove obstacles for the reduction of the backlog and improve operational efficiencies”. The inspection teams are conducting an average of 5.3 inspections a day, but the U.N. added, “In the last two weeks, the average wait time of vessels between application and inspection is 21 days.”
China is home to 20% of the entire global population so when they report any significant changes in those numbers the world pays attention. This week the Chinese government acknowledged that their population is declining and now is near 1.4 billion. Some analysts believe that China’s former one-child policy (which ended in 2016) will lead to even further losses in total population and could fall to 494 million by 2100. Economists wonder if there is any direct relationship between the reduced demand for U.S. ag products and the decrease in population. John Payne of HEDGEpoint Global markets says “the demand from China certainly is a problem. I don’t know if demographics in China are correct. The reports we get out of there you have to take with a grain of salt. So, this week, to see them finally admit to that, you just wonder if that’s baked in the cake or not.”
With 20% of the world’s entire population, China is a mecca of demand for agriculture products. According to AgWeb it is the largest consumer of ag products ever in history. So, when Chinese demand for our ag products decreases it becomes worrisome. Jim McCormick of AgMarket.net finds the lack of demand from China alarming “Right now, the biggest demand concern is China. I mean there’s a lot of trade anticipating China will eventually come to our market and start buying corn. But the reality is they haven’t. They’ve been buying a lot of corn from Brazil, at this point in time.” What this could mean for commodity prices this year also has him worried. “It is a very legit concern, and we need to keep an eye on ethanol demand. USDA didn’t make a lot of adjustments there. But the reality is there’s a real fear we’re going to go into a recession, that’s not going to be good for demand for ethanol. And that’ll trickle down the price of corn as well.” Another important detail to watch is the hog population in China. Payne says, “This week, we got the word that China is going to aggressively cut their sow population. They’re going to liquidate some of their herd to make up for some meat supply losses they’ve had during COVID-19. And how that affects corn demand is a pretty good question. They’re not going to be building their herds, so corn and soybean meal demand, specifically, I think, are probably a little high here (at these prices) but again, I think that’s a story for Brazil right now.”
Payne is also paying attention to China’s shifts in policies and what that could mean for demand. “China is setting the stage to kind of operate much like the North African nations did in the wheat markets where they were buying from the U.S. forever. We had some regime change, some macro-economic changes and then all of a sudden, they’re now buying from Russia. And now they’re a big Russian client. That same thing could happen here, where a lot of corn demand that the U.S. has been selling to South Korea, Japan and China goes down to South America.’ He also pointed out that the U.S. demand for domestic corn is strong, but ethanol demand is a very important line item to watch. “Thankfully, we have a lot of industry here, and they can use corn. But on the margins, specifically with ethanol, we’re going to see oil prices really rallying, and I think you’re going to have the ability for corn to shed demand at these prices.”
The weekend forecast looks favorable with only minor accumulations across most of Iowa and MN. The GFS model is shown below.
The end of January is quickly approaching and so is a colder weather pattern. The coldest readings are forecast to blanket the upper U.S. from January 26th through February 2nd. Expected temperature deviations from normal are still debatable but 2 current models are included.
A strong ridge is expected to build in the SE U.S. within the first few days of February. This will allow for a SW flow to develop helping to move temps higher.
Movements of the Polar Vortex set the stage for Arctic outbreaks. When it is stable the coldest air in North America remains by the Vortex which is typically near the North Pole. Today the Polar Vortex is located at 10mb, the highest level of the atmosphere and temps near the Pole are 78 degrees below 0!!
Looking ahead 10 days the purple located near the Pole is displaced. Temps near the North Pole are forecast to improve from -78 degrees to -25. As illustrated in the next map a buckle in the atmosphere is predicted to form allowing the brutally cold temps into the mid-latitudes. These events take several weeks to develop which makes them very difficult to predict so if these Polar temps make it into the U.S. they aren’t expected to arrive until mid-February.