Update for May 26th, 2022
Ukraine/Russia Negotiations and What it Could Mean for Global Food Security The United States is the #1 corn exporter in world followed by Brazil with China the largest importer of corn globally. This week China has formed an agreement with Brazil to import corn from the nation for the first time in 9 years and has made a purchase of Brazilian corn for delivery this fall. The two countries are discussing a similar agreement for soy protein and soymeal. Typically, these corm bushels would have been sourced from Ukraine but since the start of the war this normal flow of grain has ended. The fact that China will be importing a significant amount of their corn needs from Brazil has shaken up the corn market this week. It’s important to remember though that this will rearrange where the exports originate and the destination but it does not change the total demand on the balance sheets.
While the weather has cooperated long enough for U.S. corn producers to now have over 60% of the nation’s corn crop planted, many acres remain unplanted. It’s getting late for these acres to be planted which brings in the possible “Preventive Plant” option for growers in these water-logged regions that may not have locked in sky-high inputs. The USDA Acreage report scheduled for June 30th will be closely watched by the trade.
Traders have very differing views of where total corn acres may end up some expect to see a 2+ million acre increase while others anticipate a decrease of 2 million corn acres. In addition to the acreage wild-card there now is a theory that in an effort to reduce input expenses some producers may opt to reduce fertilizers, fungicides and other yield enhancing products, raising concerns about the impact these shortcuts might have on the final yield.
A recent report by the Eurasia Group and Gro Intelligence says that the war in Ukraine will likely turn out to be a long-drawn-out stalemate. If this is the case the Donbas and parts of southern Ukraine would sink into “frozen conflicts” where fighting continues and sanctions remain in place with little hope of a resolution. If this outlook is accurate and Ukraine’s farming capacity and export capabilities continue to be limited and Russian fertilizer and energy products continue to rise the impacts will be devastating to the entire world. According to the report this scenario is likely to cause:
• Over 280 million people will plummet into food insecurity this year.
• The number of people facing extreme poverty will increase by over 200 million.
• Individuals on the verge of starvation will rise by 7 million.
Recently an article ran in The Economist titled “The Coming Food Catastrophe”. This article warns that the world may not realize the gravity of what lies ahead and Putin is responsible. They explain that by invading Ukraine “Vladimir Putin is going to destroy lives of people far from the battlefield – and on a scale even he may regret. The war is battering a global food system weakened by Covid-19, climate change and an energy shock.” For many weeks now Ukraine’s exports of grain and oilseed have been mostly at a stand-still and Russia’s are threatened. Combined these two countries supply 12% of all global traded calories. Antonio Guterres, the un secretary-general warned on May 18th “the specter of global food shortage” could last for several years. He said that if the war continues on and supplies from Ukraine and Russia are limited, hundreds of millions more people may fall into poverty. (The Economist)
Previously I wrote about the meetings being held between negotiators from the U.S., EU, Turkey, Ukraine and Russia regarding a deal that would provide “safe corridors” for the movement of Ukrainian grain exports. Yesterday it was reported that Russia will consider a deal allowing exports out of Ukraine’s Black Sea ports if the West agrees to lift their sanctions against Russia. Prior to this week’s meeting the Russian UN ambassador said, “We are prepared to export fertilizers and grain from our ports to the world market”. Regarding exports from Ukraine he said, “I think that should be negotiated with the Ukrainians.” Of course, we realize that the decision isn’t really up to Ukraine, exports will only occur if Russia gets what they want from the West in return. At the World Economic Forum in Davos held this week the Ukrainian foreign minister said, “You could not find a better example of blackmail in international relations.”
The Wall Street Journal ran on opinion article yesterday proposing the U.S. should approach these negotiations with Russia as a humanitarian operation. Former U.S. Army General Jack Keane suggests this mission be labeled as an “international food and export operation” that would be supported by a coalition of warships escorting grain vessels out of the Black Sea. This idea is improbable but could be considered as the availability of food and the sky-rocketing price for it 6is gaining more attention.
This week a Ukrainian-based consultancy called APK-Inform has increased the outlook for new crop grain production and exports for the country. Given favorable weather this spring the group is projecting the corn crop at 25.2 MMT compared to the current USDA estimate of 19.5 MMT. Export outlooks have also risen for 22/23 new crop corn. Previously the group estimated exports of 33.2 MMT but increased it this week to 39.4 MMT.
The U.S. Climate Prediction Center is changing their La Niña outlook for the remainder of this year. Earlier signs pointed to an early breakdown of the pattern but new outlooks from the CPC show that has not happened and have now raised the odds of the pattern lasting through the summer to 59% and now consider it has a 55% chance of strengthening and lasting through the fall.
The National Weather Service issued the 90-day outlooks and they call for above-normal temps across most of the U.S. Below-normal precipitation is also expected across most of the western Corn Belt with a few exceptions.
Only 2 times since the 1950’s has a La Niña weather pattern occurred 3 years in a row, in 1973-1976 and 1998-2001 and now 2020-2022. During La Niña changes in Pacific Ocean temps affect tropical rainfall patterns from Indonesia to the west coast of South America. The changes this causes in tropical rainfall affect weather patterns found around the globe. In the U.S. the jet stream is usually strongest during the winter months so that is why most of the effects we feel are usually during the winter. During La Niña the Pacific NW is usually wet in the fall and winter while the southern U.S. from CA to the Southeast Coast, generally tends to be dry. La Niña is responsible for the precipitation patterns that produced an overly wet spring that delayed planting in several key corn growing states this year. The persistent system could also spell problems for parts of the southern U.S. as it can increase the chances of an active Atlantic hurricane season. The hurricane season intensified during the late summer months in 2020 and combined the two seasons of 2020 and 2021 saw a total of 51 total storms develop of which 21 became hurricanes and 19 that made landfall in the U.S.
Currently over half of the contiguous U.S. is experiencing drought. From the Southwest and central to southern Great Plains drought conditions have only worsened over the spring season.
Globally another year of La Niña could spell trouble for crops. Typically, SE Asia, South Africa, India and Australia see above normal precipitation while drier conditions are common in Argentina, Europe and Brazil. Both Argentina and Brazil have already experienced sizeable yield losses during the 20/21 and 21/22 growing seasons.
Spring temps will return tomorrow just in time for the long weekend. Sunny skies and 70 degrees are predicted for Friday with higher temps arriving on Saturday.
Sunday temps are expected to rise into the 80’s.
Even higher temps in the 90’s are forecast for Memorial Day.