US planting intentions open the 2023 US crop of corn

The corn market is experiencing again its fundamental seasonal variables added to a financial situation of panic about the global recessive risk. Many variables are part of the formation of commodity prices and they are intertwined in everyday life with financial market actions and the seasonal picture of price volatility. In this way, the global financial risk and its impacts on markets accelerate certain price movements in commodities that would only occur later. Meanwhile, the fundamentals in each market also continue to bring their volatilities, such as, last week, the possibility of Russia limiting wheat sales after successive price lows in the international market. And we will have another tense week with the USDA report for the 2023 planting intentions and quarterly stockpiles.

The decisions of central banks last week ignored or did not materialize a greater concern over the risk of crisis in the financial market. Very low interest rates for a longer period allowed the system to become excessively indebted, and now, with rising interest rates, debts start to grow and impact balance sheets. A reversal of the yield curve could ease this scenario, but not before bringing inflation to the target. This set of information begins to force funds and investors to reduce exposure to commodities that are priced well beyond their traditional or recent historical average.

Oil was the first commodity to suffer this impact, falling below USD 70/barrel in New York. The multiplier effect of this oil environment is to reduce the pricing capacity of biofuels. Ethanol and biodiesel suffer from the decline in petroleum and gasoline/diesel oil. Consequently, the impact ends up occurring in the prices of corn and soyoil.

Besides, there was strong exposure of banks and funds to some commodities with bets on the effects of La Nina on South America. Some international banks exposed this environment of high prices for the soybean complex, inducing the market to believe in a 30/40% decline in the soybean crop in South America this year. Argentina really has a relevant and record crop failure, however, when added to the data on South America, the losses end up being much smaller due to the good production of Paraguay and the Brazilian record. So, soybeans already had a bearish bias, but funds insisted on a bullish situation, ignoring the total crop in South America. Some have tried to support this picture by pointing out that taxation on palm oil by Indonesia could lead to a sharp rise in soyoil prices. Palm oil prices collapsed, did not support soybeans, and, due to the financial crisis, funds began to dismantle net long positions in the soybean complex.

Corn also looked for a pressure bias due to the trajectory of the financial market. However, US exports were not doing well this first quarter, wheat prices dropping rapidly below 7.00/bushel, and the world demand still not implying a strong demand for US corn. With some surprise, China appeared in the US market with imports of 2.7 mln tons in two weeks and held back the downward momentum in corn prices. We may see an even stronger US corn sales flow through September, helping old-crop prices.

Another piece of information at the end of the week was the Russian government’s announcements to trading companies to contain the pace of wheat sales. The sharp decline in wheat prices and the start of the Ukraine summer crop planting are beginning to pressure wheat and corn prices in the Black Sea. The fear of the Russian government in the devaluation of its main agricultural export commodity may lead to decisions to contain exports in an attempt to hold back wheat prices.

So, in general, there are no major new fundamental facts to change the trajectory of prices in each commodity. In the case of soybeans, the pressure of the Brazilian crop neutralizing the Argentinean crop failure, in wheat the Black Sea variable and, in corn, the expectation that demand will be converted into greater exports from the United States until September.

However, one piece of information, as of now, is common to all: the performance of the 2023 US crop. The US winter wheat crop has improved production and must point to continued pressures in the wheat market. Corn and soybeans face the traditional “weather market” or regional climate market. And the crop starts on March 31, when USDA will release its planting intention report for this year’s crop.

The market is starting to form its consensus for this report. For corn, 91 mln acres for the area to be planted this season, against 88.6 mln acres in 2022. The decline in production costs, mainly urea, and the available area not planted in 2022 could help this planting profile. For soybeans, 88 mln acres, against 87.5 mln acres, but we believe in the same planting area as in 2022.

The market will behave according to this report. From there on, we start the 2023 US crop already watching the weather in this local spring. We must reflect that for the last three years the US crop presented some kind of problem that prevented production from reaching its potential. This situation was enough to contain the recovery in stockpiles and helped corn and soybean prices to avoid sharp lows on the CBOT. Now, we will enter a new cycle, the 23/24 season, which begins with the 2023 US crop and establishes the traditional attention to climate for the next five months. The weather for this local spring suggests normal conditions in April and May. Corn planting begins around April 20, generally in the Midwest, and only in Texas the planting takes place from the 10th. Should the weather remain favorable and the planting advances within the normal window, new crop prices (from September on) may begin to yield more on the CBOT. Delays due to excessive rainfall could generate price rallies. For now, forecasts for April and May suggest normal planting conditions.

Tags: Brazil, variables, prices, US, soyoil, palm oil, crop, South America, yield, Market, corn, Argentina, Indonesia, Paraguay