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The last half decade has been volatile for agricultural commodities. From a surge of investment in commodity-based exchange-traded funds following the coronavirus pandemic to the war in Ukraine, which literally stopped the flow of agricultural products out of Ukraine for a short period.
Looking forward, unknowns still exist that could drive additional volatility in the coming months, such as the potential return of La Niña, which can substantially impact yields in the southern growing regions of South America.
The war in Ukraine has reshaped trade flows in Eastern Europe, with overland routes becoming favored over the more dangerous Black Sea transit immediately after the conflict began. However, this shift led to political pressure from farmers in neighboring countries, as competitively priced Ukrainian grain and oilseed shipments flooded domestic markets in other Eastern European nations. Later on, thanks to its Humanitarian corridor, Ukraine increased its exports through deep-water ports, bringing them back to pre-war levels at points during the year. These changes in export channels have contributed to some of the highest levels of market volatility ever seen in the agricultural and energy sphere.
While the market has largely priced in the risk of the conflict, a shortfall in European wheat and barley production this summer will likely change the relationship between corn, wheat, and barley prices in Eastern Europe and the rest of the European market, supporting E.U. basis levels, even as potential record U.S. corn production weighs on futures prices.
Market volatility driven by the Ukrainian conflict has largely subsided as traders and analysts better understand the impact of the war, which has been ongoing since February 2022. As a result, the main driver of market prices towards the end of 2024 will be the supply of corn coming to Europe, Middle East and Africa (EMEA).
The main supply to this region is grown in Europe and the Black Sea, with Africa and the Middle East being a net-importer of corn. Europe is both a large producer and consumer of corn, conventionally being a market consumer of Black Sea corn. However, due to the climate within Europe and the Black Sea, a range of different grains are grown, meaning that the pricing of corn within the EMEA region is very supply-driven. For example, if the market price of corn is too high, processors throughout the supply chain will switch commodities based on price when it comes to animal feed and biofuels.
Europe and the Black Sea collectively account for 52 percent of global barley production, 50 percent of oat production and 29 percent of global wheat production. However, these regions account for only 8 percent of global corn production.
Ukraine’s corn production is marginally lower in the last few years. Ukraine’s corn area has fallen because of the obvious impact of the increased risk due to the conflict. In addition, the main corn-growing areas are in the northern and central regions of the country, making it harder to export from the ports in the south (Odessa, Danube River). Also, the rising cost of crop inputs, like fuel and fertilizer, and a depressed internal corn price reduced Ukrainian corn farmers’ margins in 2023-24, which led to a switch to soybean plantings.
With corn having a smaller market share over other grains in Europe and the Black Sea, to some extent, its demand from nations in Africa and the Middle East is mainly driven by 1) Europe’s total corn production and 2) global corn prices. Both functions will determine the relative premium or discount of corn prices to other grains. In the EMEA region, corn’s relative discount must be significant enough to gain demand over wheat and barley.
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There is a notable demand for both wheat and corn in the EMEA region. However, the relatively larger production of wheat and barley in the region provides wheat and barley significant logistical advantages, making it difficult for corn to grow market share unless the supply of the competing crops falters.
For example, in the 2019-20 marketing year, on average, nearby Chicago wheat futures were over 1.3 times more expensive than nearby Chicago corn futures. From this, import demand for corn year-on-year increased in Algeria (+ 17 percent), Egypt (+ 11 percent), Morocco (+37 percent) and Saudi Arabia (+23 percent).
In turn, in 2022-23, the ratio dropped to 1:1 as Chinese demand was strong. Russia had invaded Ukraine, so the output was lower. This was further exacerbated as European farmers experienced a drought, which significantly reduced corn production on the continent by nearly 30 percent year-on-year. This reduced corn demand in this region and notably changed this pricing dynamic.
Corn crops in primary EMEA growing regions are close to maturity, allowing farmers to begin harvest. Although most of the crop has now passed its silking phase (when it is most susceptible to drought), further downgrade adjustments can still be made to production numbers.
During this growing cycle, Eastern Europe has experienced a significant amount of drought, with notable downward yield revisions in Bulgaria, Hungary and Romania. This drought has also been experienced around the Black Sea region, with daily temperatures reaching 35°C (95°F) in core Ukrainian corn regions throughout July, which has impacted the crop.
Fastmarkets predicts European and Black Sea production will be the smallest since 2022-23 due to the recent droughts.
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Understanding the relative supplies of feed grains is critical to understanding the trade flows into the EMEA region, which consumes 20 percent of the world’s corn supply, 74 percent of world’s barley supply and 44 percent of the world’s wheat supply. Despite the robust demand in the region and problems with production in Eastern Europe, near-record U.S. corn supplies have pressured flat prices over the last several months. The decrease in the relative level of production in Eastern Europe, should lift corn basis levels, but competitively priced alternatives will likely limit upside price movements in EMEA basis levels.
These downward revisions to the corn crops in Europe and the Black Sea have largely been priced into the market already. The outlook for the global corn market in the short to medium term is forecast to remain flat or even bearish depending on USDA’s corn crop estimates and growing conditions as the crops enter the final stages of development for the 2024-25 marketing year.
The potential for record yields and production in the US will be a key input to determining how low corn prices might decline post-harvest. For producers, the outlook does not improve, with many analysts expecting record production in Argentina and Brazil during the Northern Hemisphere winter.
Market volatility and price fluctuations in the corn market create major challenges, compounded by the difficulty of predicting future supply trends and the lack of access to real-time data. Our advanced forecasting models use market-driven price data and predictive analytics to deliver accurate trend forecasts, enabling you to lock in futures contracts at the best prices and maximize profit margins.
Speak with us today to learn how our solutions can help you stay ahead of the market and enhance your profitability.