BEARISH DRIVERS
- Fear about a global recession;
- More favorable weather forecast for grain development in the US Midwest;
- Agreement involving the creation of a Ukrainian export corridor through the Black Sea.
Bullish DRIVERS
- Restriction on grain supply due to conflict in the Black Sea;
- Uncertainty whether agreement for Ukraine grains export will be fulfilled;
- Expectation of lower production in the European Union due to the drought.
Despite more favorable prospects for Ukrainian crop and shipments in 2022/23, corn futures contracts ended last week in the positive field in Chicago. The US weather was once again a major driver of prices, but the USDA's cut in production estimates for the US and EU crops also supported the market. The contract due in September 2022 ended Friday (12) at 639.75 cents/bu, accumulating a weekly appreciation of 29.5 cents/bu, or 4.8%.
Intraday (15 min) - September/22 (CBOT)
US crop conditions surprised the market. Last Monday, the USDA released its weekly crop monitoring report showing that only 58% of US corn crops were in good or excellent condition, 3 points than a week ago, surprising agents, who had expected a 1-point drop. In the same period last year, 64% of the area was in good or excellent condition. The worsening conditions of the US crop were an important support factor for quotes throughout the week. Weather models have been inconclusive, sometimes showing more favorable conditions, sometimes more worrisome, but for this week, forecasts indicate, at least for now, that there may be beneficial rains in much of the belt.
US corn shipments were lower than expected in the week ended August 4. According to data released in the USDA's weekly export inspection report, the US shipped 555,600 tonnes of corn in the week ended Aug 4, 349,700 less than in the same period of 2021. The volume was below the range expected by the market, which varied between 701,100 and 1.15 million tonnes. Cumulative exports totaled 52.5 million tonnes, 11.4 million less than at the same time of the previous season. The accumulated volume is 9.7 million tonnes below the USDA estimate for the current season.
Weekly ethanol production in the US drops in early August. The Energy Information Administration (EIA) reported that US ethanol production declined to 1,022,000 barrels per day (mbpd) for the week ended August 5, 21 mbpd lower than a week earlier. Stocks also retreated, to 23.26 million barrels, against 23.39 million in the previous week.
Conab reduces production estimates for 2021/22 crop. Last Thursday, Conab released its monthly crop survey, making slight increases in first-crop production to 25 million tonnes, against StoneX's estimate of 26.4 million. On the other hand, second-crop production was cut down by just over 1 million tonnes, to 87.4 million, a volume considerably below the 93 million tonnes estimated by StoneX. The cut in the winter crop was motivated both by reduced planted area and productivity, and represented a support factor in the week. Even so, the number, if reached, would be a record for the second corn crop in Brazil. The third crop was slightly reduced, to 2.31 million tonnes. With this, total production was estimated at 114.7 million tonnes, almost 10 million tonnes less than the latest StoneX figure.
US export sales advance but remain lower than last season. The USDA reported that net sales for the 2021/22 crop totaled 191,800 tonnes in the week ended August 4, against 57,900 tonnes the week before. In the equivalent week of 2021, US net sales stood at 377,600 tonnes. The volume was within the range expected by the market, which varied between 0 and 300,000 tonnes. Commitments to all destinations increased to 60.9 million tonnes, against 70.1 million in the same period last year.
Weekly US export sales - 2021/22
USDA reduces production of US 2022/23 crop. As expected, the USDA adjusted US corn yields. The 2022/23 crop yield was reduced from 11.11 t/ha to 11.01 t/ha, against average market estimates of 11.04 t/ha. Due to the delay in planting, the market also expected a review in US area. However, the corn harvested area did not change much and received a slight cut of 0.1% compared to the previous figure, to 33.1 million hectares. As a result, US 2022/23 production fell by 1% compared to the July estimate, to 364.7 million tonnes, a figure that surprised the market, as average estimates pointed to a production of 365.6 million tonnes. Ending stocks for the 2022/23 season fell by around 5.6% compared to the July estimate, to 35.3 million tonnes, below the average market estimate of 35.6 million tonnes, which was a support factor for corn at the end of the week.
More favorable expectations for the Ukrainian crop. Another highlight in the USDA S&D report was the increased estimate for 2022/23 Ukrainian production, from 25 to 30 million tonnes, which was followed by a positive revision in exports, from 9 million to 12.5 million tonnes, and in Ukrainian domestic consumption, from 10.7 million to 11.7 million tonnes. After the agreement recently signed for the creation of a Ukrainian export corridor through the Black Sea, a flow of national grain through the Black Sea ports was seen. The volume so far is still much lower than that recorded before the conflict, but as new vessels leave Ukraine's ports and the agreement is met, optimism grows around an increase in corn supply on the international market.
Drought affects European Union corn crops. Despite the more favorable prospects for Ukrainian production and shipments, the prospects for the EU are in the opposite direction. The USDA estimates a drop in European Union production, which went from 68 to 60 million tonnes. Europe has been experiencing a severe drought, a factor that motivated the cut. Amid lower production, the Department expects imports to total 19 million tonnes in 2022/23, 3 million tonnes more than previously estimated, a factor contributing to the corn rallies late last week.
SPOT PRICES (USD/60kg-bag)
