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FEATURE: Corn market's bumpy ride to continue in 2021 amid production losses, rising demand

Highlights

Ukraine 2020-21 corn output seen falling to 29.5 mil mt

Ukrainian exports likely to fall 17% on year in 2020-21

Chinese demand continue to remain strong

London — After experiencing a tumultuous year during 2020, the corn market in 2021 is going to see lower exports from Ukraine, a key producer, due to drop in the production.

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The outbreak of the coronavirus pandemic followed by severe droughts within the corn producing regions of the Black Sea and the US, lifted corn prices toward the end of 2020, while volatility plagued the market.

Drop in Ukrainian production resulted in a series of defaults on forward contracts by farmers. Defaults on signed summer offers to supply corn in October through December prompted exporters to cover some of their short positions in the FOB market. As a result, corn prices rose to 6-year high of $239.50/mt on Oct. 27 from this year's low of $166.75 on Aug. 12. In addition, strong international demand tightened the already constricted market as China imported record volumes of corn. Moving toward the New Year, the trend is unlikely to slow down.

Ukraine has been a major contributor to the supply of global corn. It produced 35.81 million mt during the record 2019-20 season, according to the US Department of Agriculture (USDA).

However, the situation has changed this year due to unfavorable weather conditions undermining the yields. Ukraine experienced a severe drought in the main grain producing regions throughout August and September during which substantial growing of crop takes place.

The production for the 2020-21 marketing year (Sept. 1, 2020 to Aug. 31 2021) is estimated at 29.5 million mt by USDA. This drop in production will result in lower exports for the 2020-21 marketing year. The USDA estimates Ukrainian exports at 24 million mt, a decline of 17% year on year, for 2020-21 marketing year in its December World Agricultural Supply and Demand Estimates.

Ukraine exported 8.34 million mt of corn as of Dec. 23, according to the agriculture ministry, which is 2.63 million mt, or 24% lower than the same period last year.

Ukrainian exports into the EU dropped 56% to 2.06 million mt as of Dec. 20, data from EU crop observatory showed.

Along with Ukraine, lower exports from Russia is also helping boost the prices. Russian exports are expected to drop to 3.1 million mt this year from 4.07 million mt over last season, as per USDA estimates.

According to Platts Analytics, Russian corn production in 2020-21 is estimated at 14.8 million mt. By Dec. 10, Russian farmers had harvested 14.3 million mt of corn from 97% of planted area, according to the Russian agriculture ministry. This compares to a total production of 14.28 million mt last marketing year.

UKRAINE LOSING COMPETITIVENESS

This rise in Ukrainian corn prices have undermined the competitiveness of the Ukrainian origin.

Ukrainian corn is facing strong competition from the US at some destinations while South American origins will enter the market in the second quarter of 2021.

At the same time, international demand remains strong, from China in particular.

Demand for corn in the major consuming countries is likely to see a steady rise in the ongoing year. World imports of corn are expected to rise by 14.25 million mt from the 2019-20 marketing year to 179.57 million mt in the 2020-21 marketing year, according to USDA's December WASDE report.

China, which has been in the headlines for its higher corn imports is likely to consume 282 million mt of corn in the 2020-21 marketing year, much higher than the last five-year's average of 248.3 million mt.

China's imports for the current marketing year is estimated to more than doubled to 16.5 million mt from last marketing year's 7.6 million mt, as per USDA. However, some market players say this number is still underestimated as China may need to import more corn to restore internal stocks and increase the hogs population, potentially rising to as high as 30 million mt.

Traditionally China has imported large volumes of corn from the US, however recent trade tensions between the US and China have encouraged China to look elsewhere to fulfill their corn demand. But, as the Biden administration prepares to take office in the US, foreign policy relating to China is still unclear, potentially improving US-China relations.

Demand in other consuming regions — Southeast Asia, and the EU is also likely to see a rise this year. Southeast Asia is likely to consume 48.4 million mt of corn in 2020-21, higher than the five-year average of 43.62 million mt. In the EU, consumption is seen at 81.5 million mt, higher than the last five-year average of 78.18 million mt.

US corn production estimates for 2020-21 have fallen by 9.3% in the past six months to 14.5 billion bushels (368.49 million mt).

Amid the lower production estimates in Ukraine and the US, Brazil is expected to enter the international corn market in Q2 2021. For Brazil, the USDA in its December WASDE report estimates 2020-21 production to be at record 110 million mt, around 8 million mt higher year on year.