Pressures on the price of maize – May 2023

Prices under pressure

Over the last 6 months, maize prices in Chicago have fallen by around $50/tonne, bringing European prices down with them.

This can mainly be explained by the diplomatic agreement on Ukrainian exports reached between Russia, Ukraine, Turkey and the UN. This agreement allowed Ukraine to resume its exports by sea, as a result of which exports returned to an almost normal rate, while reducing prices from the peak they reached in summer 2022 after the invasion of the country.

This pressure on prices can also be explained at European level by massive imports of maize due to the production deficit caused by the drought of summer 2022, as well as the very strong competitiveness of imported maize (Brazil, Ukraine) compared with European maize.

European grain prices have also been affected by the monetary policies of the United States and the EU. Interest rate risks are more limited in the United States, due to the fear of destabilising the banking system, while the EU is pursuing a more aggressive monetary policy. As a result, the euro is strengthening against the dollar, which is making European grains less competitive than those produced elsewhere. This is particularly true for wheat, which is having to compete with record Russian production, leading to a decline in other grains.

Finally, hedge funds are reducing their exposure to agricultural markets due to concerns over a decline in global grain demand because of high levels of inflation. This is also putting pressure on prices.

Are we moving towards an easing of the situation worldwide?

Since autumn 2020, maize prizes have been sustained by international tensions driven by high Chinese demand, production uncertainties among the largest exporters and the war in Ukraine. This situation could ease in the second half of 2023, even though geopolitical risks remain.

Argentina, which is feeling the effects of an intense drought, should see its maize production severely affected, with forecasts of 35 million tons with respect to the 50 million figure quoted at the start of the campaign. Ukraine saw its land area decrease in 2022 due to the Russian invasion and, although the agreement on maritime exports has been renewed twice since July 2022, its export capacities are limited.

An easing of the global situation at the end of the 2022/2023 campaign and for the next campaign would require a significant presence of Brazil and United States in the global market, in a scenario in which Ukrainian maize growing areas are expected to undergo a further significant reduction in 2023. In Brazil, the safrinha maize crop was sown late, but weather conditions are currently favourable, with a record harvest hoped for (130 million tons). In the United States, maize areas are expected to be significantly up in 2023 due to attractive prices. Operators will monitor sowing conditions carefully in the coming months, to be balanced against the extent of Chinese demand. These two factors will determine whether or not American maize stocks will be able to return to normal levels.

Finally, although the Ukrainian corridor was renewed in mid-March, the geopolitical risks in the Black Sea remain, with Russia considering a renewal for 60 days, a shorter period than previously, while international grain businesses are withdrawing from the country.

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