USDA cuts US productivity to corn in August

The USDA report for the months of August and September is always important due to updates on US production. In 2022, in the face of all the tensions involving commodities in the global environment and the need for a US crop without problems, volatilities remain extreme, in some cases refusing to assume positions of stronger price moderation in a pre-harvest situation. So, the USDA August report was long-awaited for some key updates, including US crop yields and production cuts in Europe.

The first point of this USDA August report focused on expected productivity. The market was expecting 175.9 bushels/acre, and USDA brought 175.40 bushels/acre. Yields were aligned and now adjusted by a field survey. For the record of 177 bushels in 2021 and given the picture of high temperatures and limited rainfall in part of the Midwest, we can say that the failure is small. This represents production losses of 4 mln, which of course is always a number to be considered, but it represented only 2 mln tons in the cut in the projected ending stocks. USDA cut its export forecast by adjusting the cut in ending stocks.

We must understand that the historic highs of the first half of 2022 were centrally focused on a general bullish picture of commodities, due to post-pandemic demand, as well as the effects of the Ukraine war that directly hit the wheat market and indirectly the corn market. The wheat’s sharp rise in the first semester to USD 14/bushel on the CBOT reflected higher competition for corn, which reached a 2012 record at USD 8.20/bushel. Rarely does the corn market rise in this way in the first half of the year without the loss of an important crop, such as one from the United States, Europe, South America, or China. Corn losses in South America helped to contribute to this process in 2022, however, they were not the main factor.

Now, the wheat market seems more regulated. Crops from the Northern Hemisphere are reaching the markets, Russia with record production, and Ukraine with the export corridor enabling shipments. At this point, USDA certainly surprised the market by raising Ukraine’s corn production from 25 to 30 mln tons, information not provided by the local government or analysts from the Black Sea region. It also logically raised Ukraine’s corn exports from 9 to 12.5 mln tons, which could even exceed this level in the 22/23 business year.

So, more wheat in the Northern Hemisphere, Russia without sanctions, and Ukraine with an export corridor will be able to meet the demand from China and Europe for some replacement of corn, not least because wheat prices have already returned to pre-war levels.

The issue is that Europe has a production cut due to the drought that is being observed on the west side of the bloc. The Netherlands, France, Portugal, and Spain have production losses. USDA cut European production from 68 to 60 mln tons, but raised the block’s imports from 16 to 19 mln tons only. In other words, based on these preliminary data, the effect of the crop failure in Europe is 3 mln tons for the international market. Now, the rest of the lost corn will be replenished by the good wheat crop from Europe and Eastern Europe, including Ukraine and Russia.

The three mln tons to be imported are already being purchased by Portugal, Spain and the Netherlands since May from Brazil and Argentina. Therefore, Argentine exports are already exceeding 30 mln tons, and the Brazilian shipment queue for August is a record at ports. Therefore, premiums in Brazil are also over USD 1.10/bushel above Chicago, that is, European demand. Therefore, it will be relatively easy for Europe to restore its supply in the Americas by three mln tons, above expectations, without major difficulties, a volume that is not very different from that imported in recent years. In 2018, Europe imported 25 mln tons.

The Chinese picture remains unchanged. The Chinese harvest is progressing in good conditions, and perhaps, until its harvest, USDA will raise the size of production from the level of 271 mln tons. The Chinese concern in the coming months is wheat and it is expected to make large purchases in Russia and Ukraine in the coming few weeks. For corn, prices are stable in China, there are no supply problems, the government has not needed to carry out interventions, and only the south of the country has made occasional purchases from the United States. China is not buying Brazilian corn at the moment.

Considering the world environment, we note that a crop 20 mln tons below the 2021 crop in the United States gives the impression that the variables may repeat themselves for the first half of 2023. Maybe they do if some signs arise such as wheat highs, some problem in the 2023 South American crop, or even sharper losses in the US crop. However, the 2023 profile seems quite different from the 2021/22 market.

At the same time, the forecasts for weather conditions in the United States for the next thirty days have improved a lot. Reversal of high temperatures to below-normal ones in much of the Midwest and normal to above-normal rainfall. These conditions may still be favorable for corn in the early pod-filling or already in pod-filling stage. The harvest starts next month, and crop arrival pressures on prices are normal and seasonal.

Tags: USDA, yelds, commodities, US, Production, wheat, report, Ukraine, crop, Russia, Market, China, losses, exports, high temperatures, corn, productivity