Major Macroeconomic Uncertainties

World corn prices underwent a significant downward pressure in June, as a result of major uncertainties in the global macroeconomic layout. On the other hand, market fundamentals have remained tense, and this should limit any further downward price trends.

Worldwide inflation, correlated with the coronavirus impact on production and logistics, as well as the impact of the war in Ukraine on the energy markets have driven banks to take action. The U.S. Federal Reserve has been the first one to react, with recent announcements of a gradual increase in its interest rates, in the hope of containing inflation. The Central European Bank has followed suit, with interest rate increases that should begin this summer.

The situation generates fears of recession among companies – hence a decline in the world corn demand, which influences prices negatively. Several signals are of concern in that respect, e.g. the swine industry crisis in China (which will likely lead to fewer imports of corn and soybeans), as well as the drop in export contracts in the United States, observed since the middle of the spring. The rising interest rates at the central banks drive the non-commercial traders to review their strategies regarding raw materials and liquidate part of their positions. Although these traders remain net buyers of corn at the CBOT, they accelerated their sales in June, which is the main cause of the price drop and noted volatility.

Summer months are traditionally characterized by corn price volatility, especially during the U.S. corn flowering, a stage that is key to yield formation. This is why producers in the U.S. will follow July weather forecasts very carefully.

Fundamentals Still Tense

The world corn market remains tense, mainly because of the war in Ukraine. Despite talks between Russia and Turkey, which have helped to reduce the pressure on prices over the recent weeks, no solution has been found in mid-June to secure export sea lanes for the Ukrainian grains. Consequently, shipments are carried out via neighbouring countries and by land, reducing Ukraine’s outgoing flows to 2 million tons, as against 6 to 7 million tons in normal times. Even if a diplomatic agreement is reached, it would take a long time for things to get back to normal, as the Ukrainian ports must be de-mined and some port terminals have been severely damaged by the Russian shelling.

The war has also disrupted the crop-related activities for the 2022/23 production year. Producers have been able to plant 4,6 million hectares (down 11 percent from 2021). The drop is much less dramatic than initially expected, but the next stages of the production will be difficult to carry out, especially because of the input shortages and the lack of storage infrastructure. While the Ukrainian wheat is being harvested, the storage facilities are already full, as their space is limited because of the war damages and the low exports.

For the third time after 1983 and 2018, U.S. producers have turned to planting soybeans rather than corn, especially because of fertiliser prices. The U.S. grain corn areas have thus dropped by about 1,4 million hectares compared to 2021, down to 33 million hectares, reducing the U.S. production.

The import countries – especially the EU member states – will therefore have to depend on a lower number of export countries: the U.S., Brazil, and Argentina as leading players, but also on South Africa, Serbia, the Republic of Moldova and others, which will face a strong demand as a result of Ukraine’s diminished presence on the world market.

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