France’s supported corn price kicks open rare Black Sea arbitrage

Corn prices within France have drawn enough support to kick open a rare arbitrage with a depressed Black Sea market, as the economics of the move yield at least one potential fixture, trading sources have told Agricensus Friday.

A 25,000 mt cargo of Bulgarian corn is believed to be en route to the French Atlantic port of La Pallice, with one market source describing the situation as ‘exceptional’.

“It should be loaded in the next seven days and in the line up pretty soon… it’s an exceptional situation as La Pallice usually exports corn,” the source said.

With FOB prices basis Constanta, Burgas or Varna estimated at €152/mt and freight from the Black Sea to Northwest Europe estimated at €18/mt, the landed price is around €170/mt, according to a second source, with the front month November corn futures contract on Euronext currently at €174/mt at time of publication.

“It’s very well possible… it’s not a breathtakingly profitable move, but imagine if you need an outlet and there isn’t any,” a second source said, noting that La Pallice is a delivery point for the Euronext contract.

France’s domestic prices spiked through the summer as the long dry spell tore into crop forecasts and tightened domestic outlook.

"Long's on Euronext November 2018 contract are at risk of being delivered now. Sometimes it's hard to be stuck in a silo for long. They'll have to pay storage, fees to exit... the silo has the power on the long," the first source said. 

As the country’s harvest has got underway, the scale of the weather damage has become apparent, with Franceagrimer revising its French corn crop estimate down to 11.5 million mt – a 15.3% reduction on the previous year’s crop.

Alongside a revision in size, the quality of the corn is likely to face scrutiny, with the same French farm agency estimating 57% of the crop is good or excellent, versus 81% at this time in 2017.

On the other side of the equation, corn prices have faced pressure both in the Black Sea and globally as the US and Ukraine both harvest large crops simultaneously.

That has weighed on futures values in Chicago – which typically reflects a US corn outlook – and in cash markets globally, as origins have had to compete with aggressively-priced US exports.

At the same time, Ukraine has been harvesting a corn crop that will likely be just under 30 million mt – some 20% bigger than the 2017/18 harvest.