Summer cools grain markets

Summer cools grain markets | Global Perspective


Grains
The warmth has taken heat out of the US corn market and with it, the heat that translated to higher wheat prices in June.

The warmth has taken heat out of the US corn market and with it, the heat that translated to higher wheat prices in June.

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The warmth has taken heat out of the US corn market and with it, the heat that translated to higher wheat prices in June.

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After months of rain, the sun finally came out in the US Midwest in July and, with it, improved prospects for their 2019 crops.

The warmth has taken heat out of the US corn market and with it, the heat that translated to higher wheat prices in June.

Sunshine and high incoming US corn stocks mean prospects of the US corn market heating up again and taking wheat markets higher is considered unlikely unless adverse weather returns.

Still, US corn production uncertainty will remain high and the market therefore potentially volatile throughout coming months. This however, is somewhat offset by record corn production elsewhere that will weigh on global corn markets.

Brazil is set to produce more than 100 million tonnes of corn this marketing year - a record volume and up more than 20 per cent both year-on-year and on the five-year average.

Brazil benefits from two growing seasons. The second crop, or Safrinha growing season, accounts for the majority of Brazilian corn production, and in the country's centre-west region, allows double cropping of soybeans and corn.

This year's earlier-than-usual soybean harvest enabled farmers to readily respond to favourable corn prices and plant Safrinha corn at a record pace. This delivered the third highest area of corn ever planted in Brazil. With earlier planting delivering ideal establishment and growing conditions, yields are coming in at record highs.

The USDA forecasts Brazil will export 35 million tonnes this year - a record export volume and nearly 40 per cent above the five-year average.

Argentina's corn production has topped 50 million tonnes this year - up 60 per cent on last year's drought-reduced crop and on the five-year average. This record volume was underpinned by increased plantings - up 44 per cent from the five-year average, but also equal record high yields of 8.5 tonnes per hectare.

The USDA expects Argentina to export an unprecedented 35 million tonnes of corn this year.

Together, Brazil and Argentina will likely export over 20 million tonnes more corn to global markets this year and more than make up for USDA's current forecast of a 8.5 million decline in US corn exports.

Into this mix, add that Ukraine is likely to harvest its second-largest corn crop, only marginally down on last year. Global corn exporters already face lacklustre demand. Global corn consumption (excluding China) is forecast to barely rise (compared to a five-year average annual increase of 16 million tonnes).

This is because - especially in Europe, North Africa and South-East Asia - less corn and more grain, such as wheat and barley, will be used in feeding in 2019/20. The US corn market outlook will remain uncertain during the balance of their summer.

The vulnerability of the much-reduced crop area - which has been planted and emerged under mostly unfavourable conditions - means US corn-field conditions are very variable and more vulnerable to potential weather threats than usual.

As such, we expect corn - and therefore wheat - market volatility in coming months.

But among the volatility, there is a lot of additional supply from South America and Ukraine that should limit massive price gains in global corn markets.

This means it is unlikely that wheat prices will get a sustained free ride on corn again this year.

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