US corn basis premiums have surged in both the Gulf and the Pacific Northwest after grains buyers turned to the country after a Russian invasion effectively knocked Ukraine’s corn supply out of contention.
The move came after Ukrainian ports and terminals were forced to close in the immediate wake of the invasion, which began on February 24, leading to a suspension of all commercial shipping from the Black Sea and Azov Sea.
“The US is likely replacing spot demand that Ukraine cannot execute” Paul Sylvester, a broker with Waseda Commodities LLC., told Fastmarkets Agricensus.
US Gulf levels started the week at a $0.95 per bushel premium and at $309.25 per tonne, a 3% and 5% respective increase from their previous assessments, with basis levels not too far behind the recorded high of $327.75 set in May 2021.
Levels at the US PNW – the secondary export hub for the US and a key logistic link for Asia-based buyers – began the week at $1.30 bushel premium and $323 per tonne, with basis levels 3% higher than the previous assessment and $30.25 per tonne behind the record high of $353.25 per tonne also from May of last year.
However, offer levels in the FOB Gulf market jumped 10 cents from Monday to Tuesday, while bidding activity in the PNW showed similar increases, as bids for April loading premiums were heard at $1.41 over May, compared to $1.31 on Monday.
Market analysts attributed the climb, in large part, to Ukraine no longer able to export corn along with ongoing South American supply concerns spawned by hot, dry conditions across Brazil and Argentina.
Brazil’s summer corn crop harvest is expected to reach 21 million tonnes, which is 6.9 million tonnes lower than the previous 27.9 million tonnes estimates, Brazilian Corn Producers Association Abramilho and local consultancy Céleres, reported later last month.
Meanwhile, Argentina is expected to harvest 51 million tonnes of corn this year, down 1.5 million tonnes from the previous year.
Production in both countries has been severely impacted by drought, with lack of rain in the key growing regions.
“Not to use an over-worked expression but right now the U.S. is really the only supplier in town; Asian buyers had been counting on this year’s large Ukraine corn crop to supply much of their needs until Brazil’s safrinha crop comes on stream later this summer. Thus, very little coverage,” Larry Shonkwiler of Advance Trading told Fastmarkets Agricensus.
“In fact, Japan has about 1/3rd less U.S. on the books compared to a year ago and the rest of Asia has less than 10% of the amount versus a year ago. China has a third less on the books (3.5 million tonnes) and it would seem the conflict in Ukraine – which had been expected to supply 10-12 million tonnes of their annual needs this year – has really acerbated the situation,” he continued.
“It looks like everything ties back to Ukraine-Russia with the problems in South America well back. There’s nothing on the river bids or ethanol markets driving basis higher and barge freight has been relatively quiet in the past couple of days,” senior analyst at Grain Service Corporation, Diana Klemme, also shared.
River logistics and strong domestic demand for corn from US ethanol producers will also contribute to firmer physical basis levels, but there is no evidence that it is currently a factor.
Prior to the Black Sea conflict escalating, after Russia invaded Ukraine, USDA data had already suggested demand was at a good pace, with the escalation proving to be the catalyst that triggered fresh buying from panicked end users.
Russia and Ukraine collectively account for an estimated 16% of global corn exports, but Ukraine is by far the bigger exporter and had harvested a record crop this year.
“Buyers have been pushing back on values since before the crisis. Unknown how much higher it goes – so much depends on how the conflict plays out,” Sean Mulford, grain broker at Agniel Commodities, shared with Fastmarkets Agricensus.
If Ukraine supply remains out of service during the key export window in early 2022, then the US is likely to be all there is until Argentinian volumes start to land in late April.
That uncertainty in the market is likely to continue to drive price movements and physical demand until the new South American crop starts to land.
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