By Karl Setzer

Regardless of crop size, Brazil has been making heavy export sales in recent weeks, even with corn values dropping. This is the primary result of currency valuations as the Brazilian Real has collapsed to the U.S. dollar in recent weeks and farmers in Brazil can capture the spread with corn sales. Basis values are also favoring Brazil as corn from there is 85 cents per bushel under the United States. This spread favors Brazil up to the U.S. harvest, which is the next time we will likely see elevated sales demand.

Global soybean trade is down from last year by a wide margin. World soybean trade from September through June totaled 126 million metric tons (mmt), an 8 mmt decrease on the year. This is the result of lower Chinese imports, which currently total 78 mmt compared to 84 mmt a year ago. Brazil is reporting steady soybean export from year to year, but U.S. sales are down 6 mmt on the year.

The global markets are currently focusing the majority of their attention on financial outlooks more than traditional fundamentals. This has only increased as more indictors are pointing toward a world recession, including in the United States. We are already seeing consumer confidence slip lower as commodity demand is fading. Renewed cases of COVID-19 in China and the likelihood of additional travel restrictions are only adding to the possibility of further economic pressure.

Another issue that is adding to economic worries is global food shortages. The number of people around the world that were facing food shortages in 2021 totaled 828 million according to the United Nations. This was an increase of 46 million from 2020 and 150 million more than at the beginning of the Covid pandemic. The UN believes another 13 million people will be added to the total in 2022. The lack of food grain supplies out of the Black Sea are adding to these worries.

According to data from the UN’s Food and Agricultural Organization, world food values again declined in the month of June. Food values were down 3 percent in June, making it the 3rd consecutive month of declines. This was led by wheat, which was down 5.7 percent in the month and vegetable oils that were down 7 percent. Record meat prices were noted though, and when combined with a 6 percent increase in dairy values, it limited the overall decline. World food costs are still up 23 percent from June 2021.

The uncertainty around Ukraine corn and wheat production continues to grow. The question now is if Ukraine farmers will even bother harvesting the corn they just planted and if they will seed much winter wheat. Ukraine corn at the present time is trading at $1 per bushel. Wheat in Ukraine is not much better at $2.10 per bushel. These returns do not cover the fuel cost of planting or harvest. While it seems unlikely, these are factors that may reduce the Ukraine grain supply for the world market.

Weather remains a key factor in today’s markets. Even with widespread rains moving through the Corn Belt in recent weeks, several regions are still reporting inadequate moisture levels. This year is shaping up like last year for the Corn Belt where rains are being received just in time to keep crops growing. The concern is what will happen if these stop prior to crops being mature. A return of heat across the United States would also be an issue as it would cause a more rapid loss of what moisture there is.

The lack of demand for U.S. corn is starting to become more of a market factor in price discovery. The United States is seeing heavy competition in the global market from Brazil as the Safrinha crop is starting to make its way into export channels. It is not surprising this corn is being offered at a sizable discount to the United States, which is limiting demand for our offers. 

Export loadings of corn and soybeans both trail last year’s volume at this time. The rally we have seen in futures is a primary reason for this decline, but there is another factor as well. This is the lack of the Phase 1 trade agreement with China. China actively bought U.S. commodities when the Phase 1 was in place, and since it ended, China has backed away from U.S. offers.

At the same time China has formed trade relations with other commodity suppliers, mainly Brazil. The United States is currently working on building trade relations with China, including the removal of some tariffs, but even so it may be difficult to capture this lost business.

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