US corn exporters are eyeing the anticipated drop off in Brazilian corn production as a potential late boon to the export slate in a move that could rebalance some expected cancellations from China as the marketing year enters its final stages.
A steeply inverse market structure means old crop futures are trading markedly above new crop values as investors fret about the slim outlooks for US 2020/21 ending stocks and ahead of a new corn crop that should top 380 million mt.
That has raised expectations that a sizeable chunk of the huge outstanding volume of US corn sales for the 2020/21 marketing year could be rolled into the new marketing year – a concept seemingly confirmed by USDA private exporter notes released earlier this week.
On Monday, the USDA announced that China had cancelled 280,000 mt of corn from the 2020/21 marketing year and bought 1 million mt of new crop 2021/22 corn – part of a raft of new purchases announced in three consecutive flash sales totalling 3.06 million mt.
In early morning trading on Wednesday, the most liquid contract – July – hit levels around $7.28/bu, putting it $0.87/bu above the September contract and $1.12/bu above December.
However, as fears mount over the size of Brazil’s corn production this year, US sources say they could still see a burst of late trading as key destination markets turn to the US to bridge any potential Brazilian supply gap.
“Brazil will have corn to export, but uncertainty likely shifting business to the US for the time,” Futures International’s Terry Reilly told Agricensus, and that could make up for any volumes rolled to the new marketing year.
“Typically, China starts new-crop corn buying about a month from now… I think we will see them cancel old crop and buy new,” Reilly said, expecting between 2.5-3.5 million mt of old crop corn to be rolled “despite high prices likely paid.”
With some analysts, such as Brazil-based Agrural, now forecasting Brazil’s total corn production could come in below the 100 million mt level, the USDA’s current 109 million mt forecast is ripe for a major cut.
Lifeline
Some corn demand has switched to feed wheat, which could blunt the impact of any loss of Brazilian corn production but outlooks for US old crop corn exports are still expected to be increased when the USDA revisits its monthly Wasde predictions later today.
“I am a little concerned we have not seen the level of Far East buying that one might have expected given the declining safrinha crop,” Larry Shonkwiler of Advance Trading told Agricensus, citing increased feed wheat usage as a potential cause.
Currently, the USDA is forecasting total marketing year corn exports of 68 million mt for 2020/21, a figure that net sales data is likely to surpass when the USDA releases its update for the week to May 6 on Thursday.
Total US export commitments stand at 67.8 million mt, with 43.5 million mt already exported as of April 29, representing 99.7% and 64% of the USDA’s current forecast with approximately a third of the marketing year still left to run.
And, while the pace of new sales for the old marketing year has dropped to an eight-year low, analysts still expect the USDA’s export forecast to be raised again in the May Wasde update, possibly taking it past the 70 million mt level.
“I still think the USDA is 100-150 million bu (2.5-3.8 million mt) light on its old crop (export) forecast, even with a few Chinese cancellations,” Shonkwiler said, with any such upward move likely to further trim ending stocks and bring additional support to old crop corn futures.
Any rolling of purchases to the new marketing year could alleviate those export expectations and offer some relief to hard-pressed ending stocks, but with supply outlooks looking tight across most South American options, Brazil’s troubles could hand the torch back to the US exporter.
“The Brazil situation could take 5-6 million mt off their export potential between now and January 2022. So, maybe there will still be a rush for coverage?” Shonkwiler said.