Supply tightness amid weather risks may boost global corn prices

New Delhi — Global corn prices have remained on an uptrend since the beginning of 2021 and the concerns over weather conditions in major exporting countries amid tight supply situation is likely to support prices in the coming months.

Global corn prices have been on an uptrend since the beginning of 2021 and concerns over weather conditions in major exporting countries amid tight supply situation is likely to support prices in coming months.

While weather always plays a big role in the output of any crop, the need for favorable conditions in the top four corn-exporting countries in 2021 is even greater than in previous years.

With the US Department of agriculture projecting global corn ending stocks for 2020-21 to be at the lowest in six years and China showing a voracious appetite for grains, even one adverse weather event in any of the top four suppliers could send jitters in markets and push prices to fresh highs.

China's grain imports saw a sharp jump in 2020. Corn imports rose 136% to 11.3 million mt, wheat exports increased 140% to 8.38 million mt and barley imports were up 36% at 8.08 million mt.

The presence of not-so-ideal crop conditions in South America should already be bothering both producers and buyers.

While there is uncertainty about the size of the corn crop South America where planting is either finished or on the verge of closing, sowing is a few weeks away in the US and producers and buyers will take note of weather forecasts.

"Precipitation forecasts for April-June and May-July show enhanced probabilities of below-normal precipitation for the Western US, Central Asia, and much of Brazil, but enhanced probabilities of above-normal precipitation in Southeast Asia and the Philippines," the International Research Institute for Climate and Society (IRI) said March 15.

Corn importers may have to be proactive in their purchasing plans in 2021 to avoid paying higher prices later in the year.

Problems galore

The weather has already proved to be challenging for the 2020-21 corn crop in Argentina and Brazil.

The planting of the early corn crop in Argentina and yield of the first corn crop in Brazil were hit by dry weather conditions in 2020, which were largely attributed to the weather phenomenon La Nina.

The area of corn crop under good or excellent condition in Argentina was 22% as of March 17, below the 35% recorded around the same period in the previous season, Buenos Aires Grain Exchange said March 17.

Argentina's corn production is forecast at 45 million mt for 2020-21 (March 2021-February 2022), down 6.5 million mt from the previous season, according to BAGE.

In Brazil, the first corn output is also projected lower at 23.49 million mt in 2020-21, from 25.7 million mt in 2019-20, according to Brazil's national agricultural agency Companhia Nacional de Abastecimento (Conab).

The second corn crop sowing, which accounted for 73.2% of production in Brazil in 2019-20, is entering the last phase now, much later than usual.

Almost a quarter of the second corn crop area in Brazil will be sown outside the ideal planting window this year, exposing the crops to possible weather risks.

While Brazil was expected to harvest a record 108.1 million mt of corn crop in 2020-21, however, that does not mean there will not be any supply issues.

The fall in first corn crop output and firm exports even during the usual lean months have significantly reduced the supply of corn crop, which is evident in local corn prices.

Since the second corn crop sowing pace was slower than usual, the arrival of crops to the local market will also be delayed.

Both exporters and domestic feed manufacturers will be keen on securing corn crops, already visible in the high level of pre-harvest sales in Mato Grosso, the largest grain-producing state in Brazil, reaching 70% of the forecast output for 2020-21.

With Brazil's local corn demand expected at a record 72.15 million mt in 2020-21 amid low stocks, prices offered by exporters need to be highly attractive, otherwise it could reduce the quantity available for exports.

US exports

With China emerging as the largest buyer of US corn, major buyers like Japan and South Korea may face intense competition in increasing their share of South American supplies.

So far in the 2020-21 marketing year that began Sept. 1, total US commitments on corn -- cumulative exports plus outstanding sales -- as of March 11 have reached 60.505 million mt, up 109% year on year to be 59% above the five-year average, driven by the unexpected surge in demand from China.

US corn export sales to China for the current marketing year total 11.595 million mt to date, with 7.768 million mt shipped by March 11.