Drought hits maize production in Brazil
The USDA’s June WASDE report was moderately favorable to corn prices, with changes to the 2020/21 US and global balance sheets leading to a tightening.
In the United States, domestic demand and export estimates have been increased for MY 2020/21 by 150 million bushels combined and given that there has been no change on the supply side. . That meant U.S. closing stocks edged down to 1.1 billion bushels, less than the roughly 1.2 billion bushels the market was expecting. As for the upcoming 2021/22 season, there has been no change in the US corn balance, except that we should enter the season with slightly lower stocks, and therefore the Closing stocks for 2021/22 were lowered from 1.51. b bushels to 1.36 b bushels. Expectations before publication were for a number closer to 1.4 billion bushels.
When it comes to the global maize balance, the most significant change observed for 2020/21 has been the current Brazilian maize crop. Drought conditions in the region weighed on the safrinha maize crop, and pre-release expectations were that the USDA would downgrade its Brazilian production estimate. Instead, Brazilian production has been revised down from 102 million tonnes to 98.5 million tonnes, which still leaves more production than many in the market expect. The estimate is also higher than what CONAB forecasts for the harvest, yesterday it also revised down its production estimate to 96.4 million tonnes from 106.4 million tonnes.
The 2020/21 global maize balance may tighten further with the potential for further downward revisions to the Brazilian crop. However, for 2021/22, global corn stocks are expected to increase year-on-year. Therefore, we believe prices should weaken from current high levels when new crops become available. However, this assumes normal weather conditions in the United States during the summer months.
Besides weather conditions, another key uncertainty is whether the market will continue to experience strong demand for imports from China during 2021/22. The USDA predicts that Chinese imports will total 26 million tonnes in the next marketing year, unchanged from the estimate for the current season.