Nowhere to run to, baby, nowhere to hide

Grain Brokers Australia, April 27, 2021

A safrinha corn crop in the state of Rondônia in west-central Brazil shows the effects of moisture stress. Photo: Dr Hugo de Almeida Dan

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.

Safrinha in trouble

Global corn importers rely heavily on the Brazilian safrinha corn crop, and it is in serious trouble. Also known 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 44pc of the state’s safrinha area was seeded in March and early April.  Paraná is south-east of Mato Grosso do Sul and produces around 16pc of the national safrinha output. By the end of February, only 38pc of the safrinha corn crop had been planted. A year earlier, that number was 61pc. This season, 58pc was sown during the second half of March, but the ideal planting window for safrinha corn in Paraná 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 Paraná. Last week’s crop rating plummeted to 62pc in good condition, down from 76pc just a week earlier and 92pc the week before that. There are reports that the moisture stress is pushing the crop into early pollination. The state’s 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 Paraná, São Paulo, Minas Gerais, and Goiás will either see minimal rainfall or nothing at all over the next two weeks. Forecasts beyond that point are also unflattering.

Haircuts for estimates

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 tonnes (Mt).  Rabobank pegged total output at 105Mt versus its previous estimate of 107Mt. IHS Market (formerly Informa) reduced its estimate by 4.6Mt to 104Mt, with its safrinha crop number reduced from 85Mt to 79.5Mt.

Respected consultant Dr Michael Cordonnier reduced his total Brazilian corn crop projection by 2Mt to 103Mt, 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 10Mt or more. The last time Brazil had similar crop conditions and weather patterns at this point in the season was in 2016-17, and total corn production fell by 17Mt year on year.

Leafhoppers fuel concerns

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.

Serious rally

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 452.5 US cents per bushel (c/bu) on March 30 to be trading at 558c/bu, as I write. That is a 23.3pc increase in the futures price in just 26 days. Since the contract low of 358.25c/bu exactly one year ago, the price has risen 55.8pc. That is some rally!

Where does it end? The Brazilian safrinha crop issue won’t go away, and it could easily be more than 10Mt 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 4.3pct 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.

Rationing inevitable

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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