Insight Focus
- US Dept of Agriculture reduces corn production forecast.
- Chicago corn futures rallied as a result.
- Current prices are justified given the crop uncertainty.
Forecast
We are revising upwards our Chicago Corn average price forecast for the 22/23 (Sep/Aug) crop to a range of 6 to 6,5 USD/bu vs. 5,8 to 6,3 before given the confirmation of lower crops in South America and unexpected in the US. The average price since Sep 1 is running at 6,7 USD/bu.
Market Commentary
The Jan WASDE surprised with lower US Corn and Soybean production, and lower quarterly stocks both triggering a rally in Chicago but causing a negative week in Europe, with EU and Ukraine Wheat production revised higher.
We had the January WASDE last Thursday as well as the quarterly stocks report and it was a bullish report.
In the Corn front, US ending stocks were reduced by 15 mill bu from a combination of 200 mill bu of lower production (less harvested acres but 1 bpa of higher yield) and 185 mill bu lower demand with the bulk of it coming from 150 mill bu of less exports. Stocks to use remained unchanged vs. last month at 8,9%.
World Corn ending stocks were reduced by 2 mill ton all of it coming from 6 mill ton of lower production in the US mainly which was offset by 5 mill ton of less consumption. Besides the lower US production number, Argentinian production was reduced by 3 mill ton to 52 mill ton still above BAGE’s number of 50 mill ton published last week as well and BCR’s projection of 45 mill ton. Brazil’s production was reduced by 1 mill ton to 126 mill ton vs. 125,1 of Conab. China’s production was increased by 3 mill ton.
Quarterly stocks as of December 1 were of 10,8 bill bu vs. 10,9 expected or a reduction of 100 mill bu.
The market was certainly not expecting the lower production and quarterly stocks in the US, and Corn in Chicago rallied.
Corn harvesting in Ukraine is 85% complete with 23,5 mill ton harvested vs. 27 of the Jan WASDE and 42 mill ton produced last crop. Corn planting in Argentina is 83% complete and conditions stand at a poor 7% good or excellent. First Corn crop planting in Brazil is 90,8% complete vs. 92% last year.
On the Wheat front, US ending stocks were reduced marginally by 4 mill bu from a combination of 29 mill bu of higher initial stocks and 33 mill bu of higher consumption leaving production unchanged.
World Wheat ending stocks were increased marginally by 1 mill ton. EU27+UK was marginally increased by 600k ton, Ukraine by 500kton, and Russia stubbornly left at 91 mill ton vs. 105 of their official number.
In summary no fundamental changes to the global Wheat S&D projection.
The IGC increased their world grain production forecast for 22/23 by 1 mill ton most of it coming from higher Wheat production and a reduction in Corn and Soybeans.
European grains continued their downward trend thanks to the flow out of the Black Sea region continue to work more or less properly and is slowly converging with longer term values also thanks to the bumper Russian crop. Ukraine declared 769k ton of exports last week.
Looking at weather, cold and snow are expected this week in Europe, while rains are expected in Brazil and Argentina. The US Corn belt is expected to have mild temperatures and some precipitation.
The global Corn outlook has worsened mostly due to lower production in the Americas which should help to maintain Corn prices elevated until planting season in the spring brings more clarity of the size of the new crop. Wheat supply is ample mostly thanks to the bumper Russian crop which should limit upside risk, although the risk to Wheat is winter killing in Europe as the crop has not developed winter protection and any cold spell during the rest of the winter could damage the plant.
We may see some profit taking in Chicago after last week’s rally, but actual prices are more than justified.
