World Corn Market Situation Puts Pressure on Prices

World Corn Market Situation Causes Price Pressure

World corn stock increase has put heavy pressure on prices over the past couple of months. The pressure should continue at least until early 2024, at which point the onset of El Niño may change the trend.

U.S. Stocks Put Pressure on Prices

After three years of tension, world corn stocks have risen considerably, and this should put pressure on the 2023/24 prices.

This is first of all due to a confirmed record harvest in Brazil, which, after the re-evaluations of the past few months, is now estimated at 137 million tons, up from an average 98 million tons over the past five seasons. The Brazilian corn is highly competitive, particularly on the Asian markets, where China has turned Brazil into one of its main suppliers of corn ever since the two countries signed an agricultural agreement in 2022.

The prospect of a very good U.S. harvest, too, puts pressure on corn prices. With corn areas increasing strongly (35,2 million hectares) compared to 2022 and above-average yields (109 q/ha), the U.S. harvest should be the second best in history, at 384 million tons. U.S. corn stocks are therefore estimated to rebound to 56 million tons, up almost 20 million tons from the previous season. The prospect is all the more negative for the prices since the U.S. corn lacks export competitiveness on Asian markets compared to the Brazilian corn, but also compared to straw cereals. With that in mind, operators are watching the Chinese purchases closely, because they could provide some support in a market context that holds little promise. Despite a rather low growth rate, China should indeed continue to import feed grains, on account of a crop production that will be certainly lower than expected, because of this year’s many weather hazards and the decline of exports of broken Indian rice.

Lastly, corn price trends in Europe have also been impacted by the situation in Ukraine. After the grain corridor deal was ended in July, Ukrainian exports were re-directed towards the land and the Danube ports, which entailed significant freight increases. Against that background, the EU has strengthened its position as first outlet for the Ukrainian grains, especially since on September 15th, the European Commission announced the end of inspection measures that were in effect in border countries (Poland, Romania, and others).

Southern Hemisphere: El Niño under Surveillance

As plantings begin in South America, area prospects differ: up in Argentina, and likely down in Brazil.

Despite a catastrophic drought during the last production season, in Argentina, producers count on the return of rainfalls, which will allow corn to rebound, particularly since wheat areas have been reduced by weather hazards. Argentinian areas are thus expected to rise during the 2023/24 production year (7,3 million hectares).

As plantings of safra corn are in full swing in southern Brazil, in the country’s central-western region, plantings of soybeans (which precede safrinha corn – the second crop) have just begun, thanks to the return of rainfalls. According to some analysts, current prices should lead producers to reduce their safrinha corn areas, in favour of cotton, in particular. This has only happened once over the past ten years.

The two countries should also be impacted differently by the El Niño phenomenon, which, if fully installed, could change price trends starting with early 2024, through its effect on Brazil’s production.

Basically, the El Niño phenomenon, which starts in the Pacific Ocean, affects the global climate and impacts crop productions, particularly in the southern hemisphere. It has a rather positive effect on corn in Argentine and southern Brazil, but is generally very negative to the central-western region of Brazil, the country’s safrinha corn area, which provides the bulk of Brazil’s exports. The full installation of the El Niño in the coming weeks is therefore something to watch closely if one is to observe the progress of corn production and prices, as wheat productions in the southern hemisphere already suffer – and this could eventually render the global market tense for this commodity.

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