The buying spree of China has been a welcome change to the corn market. So far for 2020 new-crop delivery, China has booked 5.7 MMT — the largest preseason buy ever by China for U.S. corn and, if realized by shipments, will be the largest exports to China in the last 20 years, over the previous high of 5.2 MMT in 2011.
Unfortunately, even though new-crop bookings are record high, this is not a good signal for a strong export performance for the entire marketing year. The chart above on the right illustrates this point with new-crop sales on the X-axis and final exports for the year on the Y-axis. Prior to 2010 (red dots/line), there was a modest trend that suggested some minor relationship between new-crop sales and exports. But since 2010, that trend has clearly disappeared.
So, if new-crop sales are a poor indicator of marketing year exports, what are some key metrics to watch to gauge how effective the export program will be?
The short answer is: relative prices. With the bulk of U.S. sales happening between Sept. 1 and March 1 of the marketing year, price formation during this time period plays a key role in how well U.S. exports perform. The chart below and on the left illustrates this theme. The X-axis shows the FOB corn spread between the U.S. and Argentina, reflecting the relative strength or weakness of U.S. corn values to a key competitor. As this spread increases, it means U.S. prices are becoming more expensive relative to Argentina. And not surprisingly, when the spread increases, this tends to be associated with lower U.S. corn sales from September to March.
As we get closer to the start of the key corn selling season, it is encouraging to see U.S. values be competitive vs. Argentina. This time last year, U.S. values were 45 cents a bushel above Argentina, but today that spread has narrowed to only a 5-cent premium for the U.S. That likely bodes well for export sales to continue their strong pace and, when added to Chinese deals, could help push exports up to 2,200 MB.
Low prices should help keep the export picture this fall and help add to the bushel count. Right now the market is focused on record yields and, as a result, U.S. prices are very competitive in the world. This should help keep prices from testing fresh lows here as we get closer to harvest.
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