Global feed market: U.S. corn plantings far below expectations, setting the tone for the weather market

 

May 2022 corn futures on the Chicago Board of Trade (CBOT) settled at around $7.
35 a bushel on Friday, down 19 cents, or 2.
5%, from a week ago
.
U.
S.
Gulf No.
2 yellow corn was quoted at $8.
38 a bushel, down 24.
5 cents, or 2.
8%, from a week ago
.
June 2022 corn futures on the EURONEXT exchange settled at around €315.
50/tonne, down €23.
25 or 6.
9% from a week ago
.
Argentine corn was offered at $313/ton FOB in Shanghe, down $20 or 6% from a week ago
.
The May 2022 corn futures on the Dalian Commodity Exchange closed at about 2,848 yuan/ton, down 47 yuan or 1.
6% from a week ago
.

 

　　International crude oil futures fell this week, their biggest weekly drop in two years, mainly under pressure from the U.
S.
plan to release record strategic crude inventories
.
West Texas Intermediate (WTI) May contract on the New York Mercantile Exchange (NYMEX) settled at $99.
27 a barrel, down about 13% from a week ago
.
June Brent crude futures, the global benchmark, settled at $104.
39 a barrel, down 11% from a week earlier
.
Crude oil prices fell, undermining the appeal of biofuels, while a third of U.
S.
corn production is used to make ethanol
.

 

　　U.
S.
corn planting intentions data well below expectations

 

　　The U.
S.
Department of Agriculture surveyed nearly 78,000 farmers in the first half of March, the first survey since the Russian-Ukrainian conflict
.
U.
S.
farmers plan to reduce corn plantings to 89.
49 million acres this year, a 4.
1 percent decrease from 2021 and below the low end of analysts’ forecasts, the survey report showed
.
The U.
S.
Department of Agriculture reported that although the Russian-Ukrainian conflict has disrupted the export of corn and other agricultural products in the Black Sea region, and global demand is strong, the price of fertilizers and other means of production has soared, restricting farmers' interest in fertilizer-intensive crops
.
Fertilizer prices have been on the rise since the fall of last year.
Russia and Belarus, two major fertilizer exporters, faced sanctions from the West, and their exports faced the risk of disruption, accelerating the upward trend of fertilizers
.

 

　　Russia-Ukraine talks make some progress, but Ukrainian exports remain stagnant

 

　　The progress of Russia-Ukraine peace talks has made corn prices lose some risk premiums
.
Russia and Ukraine held talks in Turkey on Tuesday (March 28), Ukraine will pledge neutrality, Russia's deputy defense minister announced that the Russian military will significantly reduce its military activities in the Ukrainian capital Kiev and around Chernihiv
.
Ukrainian corn prices have fallen sharply since the outbreak of the Russian-Ukrainian conflict, as the military shuts commercial operations at Black Sea ports and sluggish domestic demand has led to a surplus of corn, consultancy APK-Inform said
.
Low demand from domestic mills and high inventories from farmers have kept corn prices under pressure
.
Ukrainian corn has a high moisture content of 14.
5%, making the corn susceptible to fungus and reducing the storage period to two months
.
Many farmers intend to sell their corn at reduced prices as soon as possible
.
Since the end of February, the purchase price of processing plants has fallen by an average of 200-700 hryvnia/t, and prices in the southern region have fallen by 900 hryvnia/t
.
As of March 28, corn prices were quoted at 7,300-8,000 hryvnia/ton, CPT
.

 

　　According to consultancy APK-Inform, the loss of arable land for winter crops in Ukraine could reach 41% in 2022 and the loss of acreage for spring plantings could reach 39% due to damage to Ukrainian infrastructure, disruption of transportation and contamination of land and water
.
Ukrainian officials have also said farmers may reduce plantings of sunflower seeds and corn this year, but increase plantings of grains such as peas, barley and oats
.
The Ukrainian government recently lifted export restrictions on corn and sunflower oil
.
Ukraine had 13 million tonnes of corn and 3.
8 million tonnes of wheat in stockpiles at the end of March, Deputy Agriculture Minister Vysotsky said on Thursday
.
Last week, Ukraine's new agriculture minister, Nikolai Sosky, said grain stocks available for export were worth $7.
5 billion
.
He added that if the conflict between Russia and Ukraine continues, global grain prices will continue to rise
.

 

　　Brazil's corn crop is expected to be bumper, Argentina's output hurt by bad weather

 

　　In South America, Brazil's second corn crop, which accounts for 75% of annual corn production, is off to a good start, and if the weather continues to cooperate, Brazil's 2021/22 corn production could reach a record level
.
The market currently expects Brazil to produce 112 million tons of corn in 2021/22, up from 87 million in 2020/21
.
Domestically, Brazilian corn prices are also trending lower, driven by a stronger real and an expected increase in corn production in 2021/22
.
StoneX expects Brazil's total corn production in 2021/22 to reach a record 118.
6 million tons, 2.
5 million tons higher than the forecast in March, due to favorable planting conditions for the second crop
.
The second-season corn planting has entered the final stage, and the output is expected to reach 91.
9 million tons, higher than the earlier forecast of 89.
38 million tons, and also higher than the total output of 86.
6 million tons that was reduced due to drought and frost last year
.
Consultancy Safras & Mercado expects Brazil's corn production in 2021/22 to reach a record 118.
155 million tonnes, up from a forecast of 115.
678 million tonnes in February
.

 

　　However, Argentina's corn production was hurt by bad weather at the beginning of the year
.
An early frost in Argentina's agricultural belt could lead to further damage to soybean and corn production, the Buenos Aires Grain Exchange said on Thursday
.
Hot, dry weather in Argentina between December and January prompted the exchange to cut corn production by 7 million tons
.
The exchange currently estimates Argentina's corn production at 49 million tons
.

 

　　U.
S.
corn exports remain sluggish

 

　　The U.
S.
Department of Agriculture's weekly export sales report showed net U.
S.
corn sales for the 2021/22 season of 636,900 tons for the week ended March 24, 2022, 35% lower than last week and 53% lower than the four-week average
.
So far this year, U.
S.
corn export sales totaled 53.
654 million tons, down 18.
4% year-on-year, but reached 84.
5% of the U.
S.
export target for the year, and there are still five months to the end of the current year
.

 

　　In addition, there are market rumors that China Grain may purchase U.
S.
corn scheduled for August through COFCO
.
Private exporters reported sales of 132,000 tonnes of corn to unknown destinations on Friday
.
The recent drop in corn prices has also attracted buying interest from South Korean buyers
.
The Korea Feed Association (KFA) bought 120,000 tons of corn through a tender on Tuesday at $399.
45 a ton
.
South Korea's MFG Group bought 137,000 tonnes of corn on Wednesday at $383.
33 a tonne CFR
.

 

　　U.
S.
considers increasing ethanol blending ratio

 

　　U.
S.
media this week said the Biden administration was considering temporarily lifting restrictions on summer sales of high-ethanol gasoline blends as a way to lower fuel costs for U.
S.
consumers
.
Adding more ethanol to gasoline blends has the potential to lower prices at gas stations across the country, as ethanol is currently cheaper than pure gasoline
.
The approach will also be welcomed by the ethanol industry, which has been working to increase sales of the fuel blend known as E15 and lift summer restrictions
.
E15 contains up to 15% ethanol, compared to the 10% found in most U.
S.
gasoline
.
The summer ban on E15 was imposed due to concerns that E15 would cause smog in hot weather
.
U.
S.
lawmakers from both parties have been pushing the White House to lift the summer E15 ban
.
Earlier this month, senators including Iowa's Chuck Grassley and Illinois' Dick Durbin wrote to U.
S.
President Biden asking for permission to sell E15 gasoline during the 2022 driving season, arguing that the increase Ethanol blending will help reduce fuel costs for consumers
.

 

　　But as the saying goes, increasing the ethanol blend rate can help lower fuel costs, but it could raise grain prices because U.
S.
ethanol is made from corn
.
One-third of annual corn production is used to produce ethanol
.
At present, the global food cost is at an all-time high, and the population of many low-income countries is facing hunger.
The United States uses corn that could have been used as food and feed to produce fuel, which not only pushes up the global food cost, but also causes more low-income people in the world to face hunger.
, will also push up domestic food inflation pressure, tantamount to tearing down the east wall to make up for the west wall
.

 

　　In fact, before the Russian-Ukrainian conflict erupted, the Biden administration had considered whether abandoning the mandatory blending of ethanol in fuels would help curb soaring corn and soybean oil prices
.
The American Baking Association has already warned about this in the fall of 2021, arguing that strong demand growth in the renewable fuel industry could create a supply crisis for food manufacturers
.
But now it seems that the top priority for the Biden administration is to curb high gasoline prices, even if it is to goug out the flesh to heal the sores, so as not to let public dissatisfaction affect the next congressional midterm elections
.

 

　　The weather market reappears?

 

　　Looking ahead, peace talks between Russia and Ukraine weighed on near-term corn futures, but data on planting intentions from the U.
S.
Department of Agriculture was supportive of new-season corn futures
.
Considering that corn plantings are so low, that means the weather can't afford to miss anything
.
Even if the U.
S.
corn yield reaches a record 180 bushels per acre, ending stocks will be only 1.
1 billion bushels, said Bill Peterman, founder of the American Agricultural Market Network
.
At a yield of 178 bushels per acre, ending stocks would be less than 1 billion bushels, which is less than the size of the channel's inventory
.
Corn prices are likely to be extremely sensitive to any weather issues as the market shifts focus to spring planting and growing season weather going forward, especially given the already extreme dryness in the Western Corn Belt, which means wild weather is likely this summer
.