Huge U.S. corn exports face hurdles from South American rivals

The United States appears well on its way to exporting the largest volume of corn in nine years, but there will be some hurdles to overcome in order to meet the full expectation for the season.

The United States is the world’s No. 1 source for corn and while not the primary form of domestic use, exports are crucial in keeping the supply from piling up, something that was a bit of an issue early on last season.

The U.S. Department of Agriculture has 2.225 billion bushels (56.5 million tonnes) of corn slated to ship by Aug. 31. If realized, the 2016/17 season would rank as the fifth-largest U.S. corn export campaign of all time, behind 2007/08, 1979/80, 1980/81, and 1989/90.

Through the week ended Feb. 2, weekly inspection data from USDA suggested that around 22 million tonnes of corn had left U.S. ports since Sept. 1. This is nearly 10 million tonnes greater than the same point last year, which ended up the slowest export effort since the drought-stricken 2012/13 season.

Official export data from the U.S. Census Bureau last week confirmed the quicker pace through December, which was 76 percent ahead of year ago. By comparison, soybean and wheat exports in the 2016/17 marketing year were up on the previous season by 18 percent and 27 percent, respectively.

The volume of total corn bookings for the year is also impressive and is at a nine-year high. Compared with annual expectations, the 2016/17 season is 73 percent sold through Feb. 2 against 59 percent one year ago.

But with global corn stockpiles at an all-time high and rival corn crops likely to set records, comfortably surpassing the 2-billion bushel mark will be no simple feat for U.S. corn shippers.

South American rivalry

There is not necessarily a defined season for the exporting of United States corn as the yellow grain is shipped at all times throughout the marketing year. (http://reut.rs/2kcK5l0) However, there are some big crops brewing in South America that could dig into the tail end of the United States’ 2016/17 export efforts.

Brazil and Argentina, the No.2 and No.3 corn exporters, do not begin their 2016/17 corn marketing years until March 1. This means that the United States’ 2016/17 season only overlaps with its South American rivals during the second half.

Argentine corn will be headed to market first, as farmers there will begin harvesting en masse next month and will continue through at least May. Historically, March through September is the country’s busiest time for corn at the ports.

In addition to the removal of export tariffs and quotas on Argentina’s corn trade midway through last season – which gives domestic sellers even more incentive to compete on the international market – a record-large corn crop is likely on the way.

The Buenos Aires Grain Exchange upped its production forecast last week, predicting that Argentine farmers will raise 37 million tonnes of corn this year. This is slightly above USDA’s 36.5 million tonnes, which according to the U.S. agency, would be nearly 7 million tonnes above 2014/15’s high.

USDA also expects that Argentina will finish off 2015/16 having exported 21.7 million tonnes of corn – record large by close to 3 million tonnes – and that another high of 25 million tonnes will be reached in 2016/17.

Brazil may also be looking at a record corn crop this year as the country should rebound from its drought-plagued harvest one year ago.

But Brazil’s corn will not start hitting the market until the harvest of second crop corn – or safrinha – gets underway in June. Brazil generally uses its full season corn to satisfy its domestic needs and then heavily exports the safrinha, so Brazilian competition will only surface near the very end of the 2016/17 U.S. campaign.

Government agency Conab has nudged the outlook for Brazil’s upcoming corn harvest to a never-before-seen 87.4 million tonnes. [nE6N1F100E] The update significantly boosted the safrinha output, which at 58.6 million tonnes would be the largest ever.

Brazil has some supply deficits to make up for after last season’s losses, so exports are not predicted at an all-time high, but if the growing season is favorable, then production outlooks could keep heading upward.

Wheat connection

USDA has not made adjustments to its 2016/17 U.S. corn export forecast since October. Additionally, no reductions have been made since the initial forecast last May, which is relatively uncommon by this point according to historical USDA forecast data. (http://reut.rs/2kBtqWP)

USDA’s corn export projections rose significantly from February to the final figure in only two of the last 12 years – 2006 and 2016. This statistic excludes the 2013/14 season, off of which the United States was still recovering from the massive supply losses from 2012’s harvest.

Brazil’s troubled 2015/16 safrinha crop propelled U.S. corn exports in the fourth quarter of the same marketing year to a record high 17.65 million tonnes (695 million bushels). However, there is no indication whatsoever suggesting Brazil could be on track for a second straight drought year.

The other year in which corn export outlooks were boosted late in the year was 2005/06. Global benchmark Chicago wheat futures <Wc1> rallied more than 50 cents, or 16 percent, from the beginning to middle of 2006, preceding the commodities boom in 2007.

Wheat prices peaked in early 2008 then dropped off significantly by the end of the year, but the elevated price levels might have been what prompted USDA to greatly overestimate 2008/09 corn exports in the initial forecast that May – despite healthy supply and reasonable production.

While it is not necessarily expected that USDA will increase its 2.225 billion bushel forecast, this trend may be able to provide an additional factor – aside from South America – that may influence how the second half of the 2016/17 U.S. corn export campaign will shape up.

Wheat and corn are both feed grains, and they tend to become more competitive with one another when the price differential weakens. There is a loose relationship between the changes in both the price of wheat and USDA’s corn export forecasts throughout the year, which suggests that U.S. corn exports could push higher as wheat futures climb. (http://reut.rs/2ly2a9r)

With global reserves at all time highs and the supply outlook fairly positive, there is no logical reason to believe that wheat prices are headed for the skies. But CBOT wheat futures have been on the upward trend recently, gaining 40 cents, or 10 percent, from the beginning of the year through Friday’s close.

If this trend continues further into the year, there may be even better reason to have confidence in USDA’s optimistic view of this year’s U.S. corn trade.


Source: Nasdaq
By Karen Braun, Market Analyst, Reuters – CHICAGO – February 13, 2017