ANALYSIS: US 2019/20 corn sales cuts lay bare export challenge ahead
Wet weather and worries over the US corn crop has eaten away at 2018/19 exports, but analysing weekly US net sales data shows the country is already lagging behind last year’s and, in the face of aggressive South American pricing, prospects for new crop exports may already be under siege.
US net sales data for the week ending September 13, 2018 showed net corn sales for the new 2019/20 marketing year had been registered just days after the start of the 2018/19 marketing year with Mexico picking up 9,700 mt of corn.
At the time, the US was basking in the record-breaking success of a marketing year that ended with almost 62 million mt of corn exiting through the country’s huge export hubs, as road and rail sinews flawlessly anchored muscular performances in the Pacific Northwest and US Gulf.
The rainclouds that settled in over the US Midwest from March through June were not on the radar, and the country’s farmers could look forward to another international tussle with other upcoming exporters to secure its stake in the export race.
By June 6, 2019, the USDA recorded the first of the reductions in 2019/20 volumes; Canada cutting 10,160 mt at a time when outstanding sales of the new crop stood at 2.7 million mt.
They have continued at a steady pace since then – by August 2019, 152,800 mt has already been cut out of next year’s sales, with Canada, Colombia, Japan, Guatemala and El Salvador all among those cutting back.
Even a quick glance of South American line up data shows that Canada, Colombia and Japan were lifting in the region of 750,000 mt from Brazil and Argentina’s ports through late July and early August.
Net sales reductions will happen for many reasons, but the lack of price competitiveness that overwhelmed the US’s 2018/19 export programme looks set to cast a long shadow over the new marketing year, with South America already issuing a declaration of intent over 2020.
“Honestly, I’m not sure I’ve seen that before,” one US-based source said.
“That doesn’t mean it hasn’t happened before (but) it doesn’t surprise me the reductions though. Corn and beans offtake is pretty dismal,” the source said.
The reductions mean that 2019/20 new crop sales now stand at 4 million mt – nearly half the level achieved at the same point of 2018 when 7.9 million mt had already been booked.
The USDA currently pegs 2018/19 export sales at 53.34 million mt although there are signs that, with only a month of the marketing year left to run, that figure could yet be clipped further.
It is already almost 10 million mt lower on the record-breaking 2017/18 marketing year, and it calls into question the current 2019/20 corn exports forecast as well, where the USDA is expecting exports to recover to 54.61 million mt.
The uncertainty still swirling around the final size and quality of the US crop, means buyers – already wrestling with the impact of African swine fever on their feed markets – are playing into the hands of the confident South American powerhouses.
Argentinian export licenses for 2020 loading already stand at 3.5 million mt, versus 1.7 million mt in new crop licenses at the same point of 2018.
With expectations that both Argentina and Brazil are poised to repeat their collective 150 million mt harvest, FOB Santos and FOB Up River indications for 2020 have underlined the region’s export intent.
New crop 2020 Up River cargoes are already offered at levels under 10 cents to the 2020 May corn contract, with the arrival of Brazil’s new harvest from July onwards dragging down both region’s values even further.
July FOB Up River is offered at parity to the July contract and bid at a 15 cent discount, with FOB Santos heard bid at a slim 3 cent premium, and offered at 10 cents, raising the possibility that the US is already losing out.
“This is perfectly possible – on top of (US woes) we have booming crops here,” one market source said, with the region’s exporters needing to move volume.
“They will fight to bring some markets back to South America,” the second source said.