Nowhere to run to, baby, nowhere to hide… | Grain Brokers Australia

Posted by | April 29, 2021 | Weekly Commentary | No Comments

Grain futures and cash prices across the globe copped a speeding ticket last week as bullish news flooded international markets, sending the bears back into hibernation. Arguably, the headline ticket right now is the plight of the Brazilian corn crop and the looming supply void, into which wheat will likely need to dive headfirst.

Global corn importers rely heavily on the Brazilian safrinha corn crop, and it is in serious trouble. Also know as the second corn crop, it is sown immediately after the soybean crop has been harvested. But the planting program was late after excessive rainfall delayed the soybean harvest. The soil moisture profile was excellent when seeding finally commenced, but it has been much drier than usual in many key growing regions ever since.

In the central-southern state of Mato Grosso do Sul, which accounts for 13 per cent of national safrinha corn production, the ideal planting window generally closes at the end of February. This year, safrinha planting commenced on January 29, but it didn’t conclude until April 16, around six weeks after the ideal planting window had closed. Approximately 44 per cent of the states safrinha area was seeded in March and early April.

Parana is south-east of Mato Grosso do Sul and produces around 16 per cent of the national safrinha output. By the end of February, only 38 per cent of the safrinha corn crop had been planted. A year earlier, that number was 61 per cent. This season, 58 per cent was sown during the second half of March, but the ideal planting window for safrinha corn in Parana usually closes by February 20.

The late planting was always problematic as the monsoon generally ends in mid to late April with the onset of the annual dry season. And the most recent meteorological evidence suggests that the rainy season is already winding down. With subsoil moisture and crop development well below average going into May, especially in the central and southern states, there is likely to be significant deterioration in crop conditions in the coming weeks.

That is already the case in Parana. Last week’s crop rating plummeted to 62 per cent in good condition, down from 76 per cent just a week earlier and 92 per cent the week before that. There are reports that the moisture stress is pushing the crop into early pollination. The states vegetative index is one of the worst in recent years, and the soil moisture profile is the lowest in 30 years.

Corn crops in Mato Grosso and parts of Mato Grosso do Sul received enough rainfall over the past week to maintain plant conditions but not build soil moisture. Rain was quite scattered across the other Safrinha corn regions, and soil moisture deficits are increasing. The states of Parana, Sao Paulo, Minas Gerais, and Goias will either see minimal rainfall or nothing at all over the next two weeks. Forecasts beyond that point are also unflattering.

The poor crop conditions and dry forecast has local analysts clambering over each other to lower their production forecasts. Agricultural consultancy AgRural called the total Brazilian crop 103.4 million metric tonne (MMT). Rabobank pegged total output at 105MMT, versus their previous estimate of 107MMT. IHS Market (formerly Informa) reduced their estimate by 4.6MMt to 104MMt, with their safrinha crop number reduced from 85MMT to 79.5MMT.

Respected consultant Dr Michael Cordonnier reduced his total Brazilian corn crop projection by 2MMT to 103MMT, with a lower forward bias based on the crop lateness, poor soil moisture profile and dry forecast. He believes that the safrinha corn crop could be cut by 10MMT or more. The last time Brazil had similar crop conditions and weather patterns at this point in the season was in the 2016/17, and total corn production fell by 17MMT year-on-year.

Cordonnier also noted that farmers in Brazil are becoming increasingly anxious about an aggressive new corn pest: corn leafhoppers. Climatic conditions and seasonal history leading into 2021 had agronomists predicting the second corn crop would be a target. That is now playing out in many districts, especially with the crop already stressed. The hoppers can transmit the MRFV virus, which causes stunting and premature wilting of the corn plant.

March may have been a down month for corn futures, but it has been one-way traffic ever since, with only two minor red sessions in the December contract this month. The price has rallied from 452½ US cents per bushel (c/bu) on March 30 to be trading at 558 c/bu, as I write. That is a 23.3 per cent increase in the futures price in just 26 days. Since the contract low of 358¼ c/bu exactly one year ago, the price has risen 55.8 per cent. That is some rally!

Where does it end? The Brazilian safrinha crop issue won’t go away, and it could easily be more than 10MMT if the weather pattern doesn’t change for the better very quickly. In a normal year, such a production hiccup would typically be absorbed elsewhere. But we are not in a normal year. Global demand has skyrocketed, with special thanks to China, whose unrelenting buying spree has not as yet been tempered by the higher prices.

This will certainly boost export demand for US corn. The challenge here is that the forecast growth in US production for the 2021/22 season is predicated on a record yield projection of 179.5 bushels per acre (bu/ac). That is a 4.3 per cent increase on the 2020/21 yield of 172 bu/ac. Yes, the area is up slightly year-on-year, but most of that rise is in poorer yielding states in the north with slight decreases in some of the higher-yielding states throughout the corn belt.

Regardless of the production outcome in Brazil and the US, some serious rationing must occur. And it seems that will have to be outside of China. Of course, this has given wheat a whole new lease of life in recent weeks as it will need to be the global feed grain backstop. However, its capacity to fill the entire gap is being challenged of late, with northern hemisphere production issues of its own emerging in parts of the US, Canada, Europe and the Black Sea.

The corn market definitely has a bit of a Martha and The Vandellas flavour at the moment: Nowhere to run to, baby, nowhere to hide!

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