Commodities 2022: Rocky road for corn exports in H1 amid weather disruptions

Corn production in the two South American agricultural powerhouses Brazil and Argentina are projected to hit record highs in 2022, but this is unlikely to provide any comfort to buyers looking for a smooth supply environment, especially in the first half of 2022.

Corn acres across the key growing countries are expected to increase due to favorable prices and strong demand.

The safrinha corn in Brazil, which accounts for most of the country's exports, will not hit the market in significant quantities till July 2022.

"For 2022, if we have a good second corn crop, Brazil will be able to export 38-40 million mt. But, since we will be busy exporting soybeans in the first half of the year, and since our second corn crop enters the market only from July on, we'll see our corn exports getting stronger only in the second half of the year, as usual," said Daniele Siqueira, market analyst with AgRural said.

In addition, a significant corn area in Argentina was also late-planted corn in the 2021-22 season, which would mean entry of the fresh crops into the market will be slightly delayed than usual.

Meanwhile, dry weather conditions in the southern parts of Brazil are expected to keep the pressure on crop supply, which is already low as drought and frost lead to huge crop losses in 2020-21. The first corn crop in Brazil is planted during September-December and harvested in February-May, while the second crop is planted in February-March and harvested in June-July.

Although early corn planting in Argentina started under ideal conditions, it needs more rains in the coming days for the late crops to flourish. In Argentina, early corn is usually planted in September-October and harvested in April-May, while the late corn crop is planted in December-January and harvested in June-July.

The weather outlook for southern Brazil and Northern parts of Argentina, however, is not favorable for the next few days. Rainfalls in January will be crucial for the crops.

"If Brazil produces a "normal" safrinha crop, its exports can reach 42 million mt, but it's way too early. If the Argentina crop is short, its exports will be around 36 million mt, 3 million mt below expectations. That leaves us with 78 million mt combined, in theory, 4 million mt below what is currently expected," said Pete Meyer, Head of Grains and Oilseeds at Platts Analytics.

The possible drop in yields and production due to the drought stress in the first corn crop in Brazil, would not affect the FOB Santos market but the domestic market of Brazil. However, with a lower first corn crop production, there could be an increase in corn exports from Argentina to Brazil in the months of May until the harvest of the second corn crop.

It will be interesting to follow where the regular buyers of Argentine corn are going to cover their needs.

"Below normal rainfall is expected across Argentina otherwise over the next 15 days. Dryness will increase over the next 15 days across Argentina, stressing corn and soybean crops, especially in northern and eastern growing areas," Maxar said in its weather report on Dec. 22.

It is also important to note that La Nina advisory remains in place for December.

The outlook also anticipates a continuation of the weak La Nina event with a high probability during December-February, persisting until February-April and dissipating in March-May, according to the International Research Institute for Climate and Society.

La Nina is a weather phenomenon associated with cooler-than-average sea surface temperatures in the central and eastern tropical Pacific Ocean.

Generally, Southeast Asia, South Africa, India, and Australia receive above-normal rainfall during a La Nina event, and drier weather is seen in Argentina, Europe, Brazil, and the southern US.

Since Argentina's corn hits the market much earlier than Brazil's, any adverse weather conditions would slow farmers' sales, further tightening the supply.

High local prices may hamper exports

The dry weather condition in southern Brazil is seen keeping local corn prices above historical levels, which could make selling to domestic consumers more attractive and reduce supply for exports.

"Corn prices should remain at high levels in early 2022 and likely to rise in the short term," said national agricultural agency Conab.

The uncertainty in the weather, the availability of fertilizer, and its rise in costs, are causing export sellers to significantly increase the value of their offers, but export demand is not following the higher offers, at least not for the nearby loading months, market sources said.

US to reap gains

The potential delay in crop supply in South America, notwithstanding the record production forecast, and weather risks are likely to benefit the US corn exporters for the second straight year.

"The United States is expected to have a longer-than-usual window of price-competitiveness through the spring. The reason is that Argentina has a more-than-typical amount of late-planted corn this year, which—under normal weather conditions will delay the harvest, and therefore a seasonal increase of exports," the US Department of Agriculture said in a recent report.

Ukrainian and Argentine exports will be stretched thin, and the US will once again be called on to shoulder over one-third of a global corn trade that is growing in response to the COVID-19 recovery as well as a deep $2.5/bushel discount to wheat, Rabobank said in its outlook.