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Long road ahead for restoring global corn supply hit by weather, war


High prices, tight supply, poor China demand hit exports

Brazil may deliver record corn crop in MY 2022-23

Dryness seen delaying early planting in Argentina this year

  • Author
  • Mugunthan Kesavan    Shikha Singh    Melvin Kwok
  • Editor
  • Manish Parashar
  • Commodity
  • Agriculture
  • Tags
  • United States
  • Topic
  • Food Security War in Ukraine

Global corn supplies have been plagued by myriad issues this year, and it is likely to take two-three years of good harvest across the top exporting regions to restore supply.

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Output from key corn producer the US is estimated 8% lower on the year at 13.94 billion bushels (354.19 million mt) in marketing year 2022-23, according to the US Department of Agriculture. Dryness across parts of the country during the growing season has hit yield adversely.

Similarly, scorched by historic droughts in the EU, corn yields slumped and production in MY 2022-23 is estimated at 59.57 million mt, more than 18% lower on the year, data from the EU Crop Observatory showed.

In Ukraine, corn export and production capacity have been curtailed by the Russia-Ukraine conflict. An extended period of war will likely see a reduction of 25 million mt corn from global trade flows, sources have said.

Global corn exports that chiefly come from the US, Brazil, Argentina and Ukraine have slowed down in 2022, hit by higher prices, lower supply, and a fall in demand from key consumer China.

All hopes on Brazil

Brazil remains the only hope for corn buyers as the other three prominent exporters stare at falling output levels.

Brazil does have the potential to deliver another record crop in MY 2022-23, but the question is if the weather gods would be kind enough. The preliminary forecast by Brazil's national agricultural agency CONAB sees MY 2022-23 corn production at a record 125.5 million mt.

"We believe that a lot is riding on the size of the Brazilian corn crop. Even if Brazil has a bountiful harvest, the problems with Ukraine, the EU, and the US will mean that 2-3 years of good harvests globally will be needed before some sense of normalcy returns. You can't export what you don't have," said Pete Meyer, head of Grain, Oilseed and Advanced Feedstocks at S&P Global Commodity Insights.

The second-corn crop planting in Brazil, which accounts for the bulk of exports, will only arrive to the market in meaningful volumes in June 2023.

Argentina and prolonged La Nina

The early corn planting in Argentina is delayed with 5.8% of the forecast area sown as of Sept. 28, compared with 16.8% a year ago due to drought, the Buenos Aires Grains Exchange said in a report.

Early-corn planting in Argentina begins in September, but the lack of sufficient rainfall may force farmers to delay planting this season. Harvesting of this crop begins in April-May, while the late-corn crop is sown in December-January and harvested in June-July.

Agronomists have attributed the dry weather conditions to La Nina -- a climate phenomenon that usually leads to dry weather conditions in southern South America.

Historically, the impact of La Nina on crops in Argentina has been more adverse and severe compared with its northern neighbor Brazil.

La Nina weather effects have taken a toll on crop yields in the previous two seasons in Argentina as well, and the latest forecast shows this may continue for the rest of the year.

La Nina is favored to continue through the Northern Hemisphere winter 2022-23, with a 91% chance in September-November, decreasing to a 54% chance in January-March 2023, the International Research Institute for Climate and Society said in its recent forecast.

China puzzle

China emerged as one of the largest importers of corn in 2020 and 2021, but the country has been trying to reduce reliance on imports to feed local demand by increasing domestic production.

So far in 2022, corn imports from China have been muted. It is unclear whether the slowdown in China's corn imports is due to lower demand or higher prices.

However, given the eagerness shown by China in recent months to pave way for corn imports from Brazil, it is likely that buyers are waiting for prices to ease.

As of Sept. 28, Platts assessments showed Brazil corn at $292/mt FOB Santos, according to S&P Global data.

In Mato Grosso, the largest producer of corn in Brazil, prices fell to Real 62.93/60kg bag ($199.28/mt) on Sept. 28 from Real 64.90/60kg bag a week ago, data from the Mato Grosso Institute of Agricultural Economics showed.

Corn prices in the spot market have eased over the past few days with the harvest complete in Brazil and expectations of grain inflows from the US, but demand from the export sector has helped put a floor on prices.

Typically, China mostly imports corn from the US and Ukraine.

China is not buying much corn. Last year at this point, it had already bought 12 million mt of US corn. So far, it has purchased 3 million mt from the US and limited supplies from other exporters, said Meyer.

"They know the EU crop is short. They know the US crop is relatively short. Are they waiting to see if Brazil can produce a record, as expected before they buy? That's a large question looming over the corn markets," he added.

While there have been some concerns about slowing corn demand due to lockdowns impacting the consumption of pork, experts said meat demand is likely to be resilient.

Corn is a key ingredient in the diet of hogs farmed by the organized sector.

Pork consumption has shifted from dining out to home consumption. Pork is the staple animal protein for China-based consumers, Rabobank said in a recent report.

Rabobank expected Chinese demand for corn to improve further in the second half of 2022 as businesses are expected to normalize in response to government efforts to stabilize the economy.