US corn market waits on better days, as supply gap beckons
US corn farmers are holding on to their corn supplies as they eye a potential gap in global corn production, led by supply fears around their heavyweight South American rivals, trading sources said Monday.
While US corn prices have faced unrelenting pressure in the face of substantial crops globally, farmers have a healthy carry that encourages storage and with Brazil and Argentina’s harvest winding down, and expectations that their next corn crop will likely lose ground to soybean, US farmers sense an opportunity.
“What would force the US farmer to sell right now?,” one Asia-based trader asked, with current spot demand for the region said to be covered out to March 2018, while US-based sources have seen farmers holding corn in storage to support drying and even investing in bags to bolster storage space.
While the US has seen a substantial corn crop this year, and expectations are already being voiced for a similar-sized crop in 2017/18, last month’s WASDE report highlighted declining overseas corn production - particularly in Ukraine where yields have suffered on hot weather in the summer, and heavy rain through the harvest period.
The November report substantially revised upwards US production, and market sources are already anticipating further revisions to the key Argentine and Brazilian corn crop in the December WASDE report as regional weather, local incentives, good demand and better returns are likely to see more acreage switch to soybean production over corn.
The November WASDE reappraised the US corn crop to just under 14.6 billion bushels, for the 2017/18 harvest, and while there were some concerns over the ability of logistics to cope, farmers and market sources saw the late running harvest and the available bin-space providing the farmer with options.
“The pull of ethanol means the space is there, especially with bags being used. It may get close, but farmers can leave corn in the field as a last resort,” one source told Census.
At 14.6 billion bushels, the crop equates to just over 370 million mt, with Argentina’s corn production set at 42 million mt and Brazil’s at 95 million mt - with both crops significantly increased on 2015/16 at 29.5 million mt for Argentina and 65 million mt for Brazil.
Estimates for the 2016/17 crop show that slowdown already underway, with Argentina reaching 41 million mt, one million mt below the 2017/18 forecast, while Brazil musters 98.5 million mt - showing Brazil’s harvest already contracting on this year’s harvest.
The prospect of La Niña sweeping across the region is also uppermost in market players minds - while much of the dryness in Argentina and southern parts of Brazil have driven soybean prices in recent weeks, there are concerns around the shrinking window for Brazil’s second corn crop as dry weather makes sowing hard and threatens to crimp the early growth stages.
Elsewhere, US export data continues to underwhelm, with last week’s export sales showing corn coming in at the lower range of analysts’ expectations - 876,000 mt down on both the four-weekly average and well below exports seen at the same time last year - but physical export locations and logistics are also seeing slow business.
According to the USDA’s grain transportation report, railroads up to November 25 handled 18,771 grain car loads, down 17% on the same time in 2016, while barge grain movements totalled 709,219 tons up to December 2, down 33% year-on-year.
While ethanol has been providing an able outlet for corn, with the US establishing a fresh record high of 1.1 million barrels per day in last week’s EIA data, focus will also fall on US corn stock levels, with many anticipating a very modest decline in levels from the current 65.4 million mt in the US (or 2.487 billion bushels).