Opinions Focus
- EU lowers corn yield forecast to 16% below 5-year average.
- US yields might be below USDA forecasts.
- Corn futures have rallied in the last week.
Forecast
No changes to our price forecast for 21/22 (Sep/Aug) Chicago Corn to be around 6,6 USD/bu in average for the crop.
The average price since the new crop started is running at 6,55 USD/bu.
Market Commentary
Grains rallied last week lead by US Corn after conditions worsened and the Pro Farmer crop tour showed a potential for lower yields vs. the USDA forecast. Trade flow out of Ukraine is making good progress.
Since our last report three weeks ago grains have slowly but steady traded higher despite the trade flow out of Ukraine increasing, and that is due to persistent hot and dry weather, especially that of July and early August which is starting to show a negative impact now.
The August MARS bulletin from the EU reduced their forecast for yields for all spring crops. Corn yield was lowered 8,6% to 6,63 ton/ha which is -16% vs. the five year average. The problem with the excess hot and dry weather has also influenced in many areas having restricted water for irrigation so the impact could be even bigger.
The export corridor out of Ukraine and controlled by Turkey has now been working for a month and the progress is significant. The Ukrainian Grain Association confirmed their expectation of 32,8 mill ton of grain exports, but they also reduced their Corn production forecast by a sizable 3,3 mill ton to 24 mill ton vs. 42 mill ton produced last year.
The Pro Farmer Crop Tour last week in the US is pointing to lower yields in Ohio and South Dakota, down 6% and 22% respectively vs. last year. These states accounted for 9% of the US crop last year. Indiana and Nebraska also appear to show lower yields. Illinois and Iowa was seen in good shape. And finally Iowa and Minnesota were seen slightly below the USDA’s estimate. The big question is if these results will now be reflected in the September WASDE. The reality is that Corn condition has been decreasing week after week in the USDA’s crop progress report thus we think we will see a lower yield in the coming WASDE.
US Corn condition fell 2 points and is now 55% good or excellent and is now the third week in a row with conditions worsening. This is vs. 60% last year. French Corn condition fell again last week and is now the lowest since the start of this publication 10 years ago showing 47% good or excellent vs. 91% last year. In Brazil, safrinha Corn is 90% harvested. Argentina’s harvest finished with production officially closing at 52 mill ton.
In the Wheat front, things are not looking that bad with a general improvement in the harvest of winter Wheat.
The German farmers association DBV reported a larger winter Wheat crop with 21,8 mill ton harvested vs. 21 mill last year, but mentioned quality will be worse. And the EU confirmed better winter Wheat harvest.
US Winter Wheat is 95% harvested vs. 99% last year. Russian Wheat is 59% harvested.
The weather forecast for this week is showing some showers in the north of the US and warm and dry weather in the rest of the Corn belt. Brazil is expected to remain dry and Europe is expected to finally see rains in the west.
On the fertilizer front, two new plants in Poland reduced output due to sky rocketing Nat Gas prices. Approximately 38% of Europe’s capacity to produce ammonia (key fertilizer ingredient) appears to be down.
Despite the correction we saw a month ago when Turkey brokered a deal between Ukraine and Russia to restart Ukrainian grain exports allowing more supply, weather has been offsetting part of it and Corn production forecast has been lowered in Europe. We now expect to see a lower production number out of the US in the September WASDE.
We may see some profit taking after last week’s rally, but overall we expect the market to remain well supported.
