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Grains Weekly Analysis

By: StoneX Intelligence Brazil, StoneX Intelligence Brazil

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Amid expectations of increased grain supply in the US, demand deserves attention
 
Ana Luiza Lodi
analuiza.lodi@stonex.com
 
João Pedro Lopes
joao.lopes@stonex.com
UNCERTAINTY ABOUT EXPORTS, ESPECIALLY TO CHINA, IS ONE OF THE MAIN ISSUES 

Since mid-2021, a downward trend has predominated for soybean and corn prices in Chicago. This is because the market closely monitors the US crop progress after estimating a very tight supply and demand balance in the country.

The US 2021/22 crop started with prospects of a lower acreage than expected by the market for both grains and concerns about dry weather in the northwest belt. However, for soybeans, yields have surprised positively even if the acreage has not really increased as much as expected throughout the cycle and was even revised downwards.

Estimates from private institutions had already brought excellent results for the North American oilseed crop, which reinforced the perspectives of an adjustment in the same direction from the official USDA numbers. In its October revision, StoneX indicated the average yield at 3.45 tonnes per hectare (with the belt states offsetting the drop in North Dakota), with a record production of 120.7 million tonnes.

The USDA's latest supply and demand report corroborated this trend of a larger crop than previously expected, with an estimated average yield of 3.46 tonnes per hectare and production at 121 million tonnes, 2 million higher from the September report.

Trend of USDA estimates for US 2021/22 soybean crop

image 20580
Source: USDA. Design StoneX.

For corn, the scenario has become more favorable in terms of area and productivity. In the last USDA report on supply and demand, the area planted with the cereal in the US 2021/22 crop year was estimated at 37.76 million hectares, up from 36.9 million hectares in the planting estimate report, released in March, and from 37.70 million hectares in the USDA's September report. 

On the yield side, the market expected a yield decrease compared to the 11.07 tonnes per hectare brought in the September report. On the other hand, StoneX indicated the yield at 11.08 tonnes per hectare in early October, with the total production estimate at 381.6 million tonnes. This was precisely the direction followed by the USDA revisions. As a result, the yield was also raised to 11.08 tonnes per hectare, with production at 381.5 million tonnes, representing the second-highest volume ever harvested by the country.

Trend of USDA estimates for US 2021/22 corn crop

image 20581
Source: USDA. Design StoneX.

Besides supply, the market will also follow the demand side, which plays a key role in grain pricing. Although the outlook, in general, is for a heated demand, with the good Covid-19 vaccination progress in several countries and the measures adopted by governments around the world to stimulate the economy, China's behavior inspires attention.

The pace of US soybean export sales for the 2021/22 crop is considerably slower than in the same period last year, with a gap that exceeded 16 million tonnes at the end of the first half of October. As a result, the USDA estimates that exports for the 2021/22 cycle will be slightly weaker, with a considerably smaller gap of 4.78 million tonnes.

China is the main responsible for this weaker pace of North American soybeans sales, and what happens in the Asian country is closely monitored. After the serious outbreaks of African swine fever, which decimated a considerable part of the Chinese herd, there were massive investments in the recovery, including a greater improvement of the meat industries. However, with the herd practically recovered, pork prices are low, which raises concerns about feed consumption. In addition, China is facing an energy crisis, with the shutdown of soybean crushers in some regions.

For now, estimates of Chinese imports stand over 100 million tonnes in 2021/22, a volume that also depends on purchases of US soybeans since the supply of oilseeds is very concentrated.
The Department estimates US exports at 63.5 million tonnes for corn, 6.42 million down from last season. 
 However, the USDA expects corn imports from China to total 26 million tonnes, the same volume estimated for the 2020/21 crop, leading to the conclusion that US corn is expected to lose market share in the Asian giant, especially to Ukraine, which is in the process of harvesting its 2021/22 crop and heading for record production.
 

US soybean and corn exports (million tonnes)

image 20582
Source: USDA. Design StoneX.

Given this scenario, and even though the crop year only ends in August 2022, US sales and shipments need to gain strength in the coming weeks, especially soybeans, since the best window for US exports is the fourth quarter of the year. In the first months of 2022, Brazilian soybeans should already resume the leading role in exports, even more with the great possibility of new record production. Thus, a recovery in US sales is still possible. Still, this movement must occur soon, noting that in the same period in 2020, the country's weekly export sales exceeded 2 million tonnes, while today the volumes are around 1 million tonnes.

  • Grains & Oilseeds

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