The bull cycle in agriculture isn’t quite over, but elevated prices moving forward hinge much more upon additional supply dislocation. CBOT corn’s ascent to $8.00+ began in late 2020 as China’s commitment to 2019’s Phase One Trade agreement, along with a real need for feed supply, boosted Chinese corn imports in 2020/21 to an incredible 1.2 billion bushels, vs. just 300 million the previous year. This was followed by corn yield in Brazil the following spring, which funneled yet more demand to the US market.
US and global corn supplies are still tight. The graphic above/below shows combined corn stocks as a percent of use in the US and South America. USDA in its September report, due to reduced US production, lowered major exporter corn stocks/use to 7.5%, the fourth lowest on record. And this assumes normal weather and trends yields in Argentina and Brazil this winter. The world’s exportable surplus will be precariously low, and this is unavoidable in crop year 2022/23.
However, and this is important, the market is no longer being driven by demand growth. CBOT corn above $6.00 is mostly a function of this year’s trimming of US production. A soaring US dollar, eroding consumer income, and rather aggressive offers from Brazil and Argentina currently have a material impact on US corn disappearance. For more, visit us at agresource.com and take a trial today.
The USDA now projects global consumption to fall 4 million tons year-over-year and decline for the first time since 2012/13’s crippling US drought. Notice that demand contraction in 2022/23 follows fairly sizable growth in consumption in 2020 and 2021. This market is different. And AgResource can’t disagree with the outlook given US export commitments are currently down 50% from last year and as US gasoline consumption has failed to match year-ago levels since early summer. Negative macroeconomic factors are beginning to have an impact on physical agricultural markets, and the fear of future shortages – a significant driver of price - is being eased. Chinese demand for US corn has been absent since spring.
Additionally, there’s hope that global weather patterns improve during the spring and summer of 2023. After three years, La Nina is finally projected to end by late winter. On the margin. El Nino’s presence offers producers in Argentina and across the Northern Hemisphere the greatest chance of meeting or exceeding trend crop yields. It’ll be a slow process, but a steady build in global grain inventories is probable beginning in the autumn of next year.
Our message is that the outlook over the next 6-8 months is less clear than it’s been since late 2020. Proactive risk management is advised – and is more important than ever.
For more, visit us at agresource.com and take a trial today. You can also email us at clientservices@agresource.com
