Jun 01, 2020
There have been few silver linings in the corn market in recent months as prices have been sharply downgraded from lack of ethanol usage and a seemingly ideal start to the U.S. 2020 production campaign.
On Thursday, prices did manage a robust 7-cent gain, helping lift nearby futures to their highest mark in a month. While no headline-maker necessarily provided a lift, you could point to several small turning points—ethanol recovery continues, South America’s corn crop is getting smaller and heat is showing up in more summer weather models—as potential supporting themes.
On the export front, the last year has seen little room for U.S. corn export business to flourish. Faced with stiff competition from Ukraine and South America, the 2019 U.S. crop year export campaign was mostly a disappointment. This time last year USDA had penciled in 2,275 MBU for U.S. exports in 2019, but a year later the final number will likely be closer to 1,800 MBU with USDA’s latest forecast at 1,775 MBU.
Do we expect 2020 exports to turn higher? USDA certainly thinks so, with their first 2020 forecast coming in at 2,150 MBU. Here’s why we think the next coming months should hold favor for U.S. corn exports, giving the U.S. a decent shot at stronger exports than 2019:
Brazil has been overshooting its corn export program for sometime, which has led to higher internal corn prices. This combined with a strong surge in feed demand as beef and poultry export demand expands should help stymie some of the flow of corn out of the country.
U.S. exports in the summer can be heavily reliant on U.S. competitiveness versus Brazil corn prices. In the last five years, when Brazil corn FOB values were at least 15 cents less than U.S. FOB values, then new-crop U.S. export sales for the months June to August averaged only 2.3 MMT. But, in the years when the Brazil value was more consistent with U.S. values, then U.S sales topped 5.7 MMT over three months. As we head squarely into summer, we see U.S. prices at levels consistent with Brazil, which bodes well.
Other competitors—Ukraine and Argentina—are also facing challenging export situations. An increasing number of ships carrying Argentine grains have been running aground in the Parana River, which is at its lowest point in decades because of drought. On Thursday, a ship belonging to Chinese exporter COFCO hauling 42,000 tonnes of soymeal ran aground and was blocking traffic at a river port in the Argentine grain-shipping hub Rosario, according to port officials. This is slowing Argentina’s export program as harvest is in full swing. Meanwhile, Ukraine had a bumper crop in 2019 and a front-loaded export program, but prices there have escalated as supplies have dwindled. This should give the U.S. a better edge in the coming months.
There is also some belief that recent dryness in the Black Sea region could persist and cause yield losses this summer for Ukraine. USDA has 2020 Ukraine corn at 39 MMT, but some weather forecasters see heat and dry during the summer which could lead to a crop closer to 35 MMT. Europe is also in the crosshair of potential drought this summer. And, as a net importer of feed grains, cuts in grain production would expand buying potential there.
FBN believes U.S. corn exports should start to show more upside potential. USDA’s starting mark of 2,150 MBU is a good first blush, but we wouldn’t be surprised if purchases mount up to improve that forecast over time. Even early sales of 2020/21 crop year over 3 MMT are a decent clip for this early in the season. It represents the best preseason tally in eight years.
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Jun 01, 2020