For most of the 2019/20 marketing year, U.S. corn and soybean export values have been uncompetitive in the global export market. A strong dollar combined with bumper corn crops in Argentina, Brazil and Ukraine have worked against and slowed U.S. exports for most of the current marketing year. Over the last three weeks, the U.S. export sales pace has risen from the dead and is showing signs of life.
The 2019/20 U.S. corn export program has faced a series of structural headwinds that has resulted in one of the slowest and underperforming export sales paces in recent years. This lack of sales volumes has forced the USDA to lower their corn export estimate for the marketing year by 75 million bushels (MBU) in the January WASDE and left the broad market questioning the current estimate of 1.775 billion bushels (BBU).
Part of the reason for the lack of competitiveness can be attributed to the shock from lack of a global feed grain supply, bumper corn crops in Argentina, Brazil and Ukraine, and a strong U.S. dollar. For almost the entire five months of the 2019/20 marketing year, the U.S. dollar has been historically strong against the local currencies of other major corn exporting countries such as Argentina, Brazil and Ukraine. Because global corn exports are transacted and settled in U.S. dollars, there is a financial and economic incentive for exporters to aggressively sell corn and convert into local currency.
We believe these variables have directed global corn export flows away from the U.S., making U.S. corn the residual supplier to the world—or the supplier of last resort. Recently, U.S. corn has become increasingly competitive against corn in the global export market. While the strength of the U.S. dollar against the Argentine peso, Brazilian real or the Ukraine hryvnia has not subsided, we believe the torrid export pace from Brazil and Argentina has drawn down stocks and forced spot export values higher. At the same time, we believe that the compression of the March corn futures price, which has declined by $0.14 from the January 2020 high of $3.94, has been a contributing variable that has helped make U.S. corn competitive.
Over the last three weeks, U.S. export sales pace has accelerated to the largest volumes of the marketing year. We believe that part of the surge in marketings is seasonal and can be attributed to the low stock levels in Argentina and Brazil. Another variable that we believe is helping to make U.S. corn competitive is the 12% export tariff on Argentine corn exports that was levied by the country’s new president in December.
We believe that now is the time for U.S. Yellow #2 corn to shine in the global export market. Lower futures prices have been a contributing variable that has helped U.S. corn find a clearing price in the export markets. The recent sales pace of U.S. corn is an encouraging signal for a much beleaguered complex, but the data illustrates that the momentum needs to persist during Argentina’s and Brazil’s intercrop period.
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