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Smaller supply and booming demand stopped the bear market in its path.

Naomi Blohm, senior market adviser

October 22, 2020

6 Min Read
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It is important to understand how much the United States matters when it comes to global corn production. As of the most recent USDA data, the United States leads the world in corn production, growing 30% of the world’s supplies. China is next with 22.5%, followed by Brazil with 9%, Argentina at 4.3%, and Ukraine with 3.4%. 

For years the world has been blessed with abundant food production, but industry talk was that we were always one major global production hiccup away from a bull market. To understand how true this statement is, simply look at where corn is grown in the world, and how strong demand has grown over the years.

In hindsight, it is easier to understand why the August weather combo of the Derecho storm and extreme heat with no rain stopped the bear market in its path.

Global end users are nervous about securing global supply

“Just in time” mentality to secure product of any kind (medicinal supplies, home appliances, machinery parts, etc…) was overhauled after COVID-19 exposed the supply chain issues that are so intricate, intertwined, and now obviously delicate to the world.

The same mentality now applies to food security. It’s not that the world will stop producing food, but the perception of “ample supply, readily available” is dwindling. Global end users are scrambling to secure grain because historically speaking, grain is still cheap, and another year of record global production likely did not occur this year.

Related:Custom-harvester, farmer-in-training hopeful about future

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A closer look at China

According to USDA, China grew 260.80 million metric tons of corn this year. Some feel that production number may actually be lower due to extreme wet summer weather in China’s key corn region. Production is down – in some cases literally, as we’ve heard reports that some harvest is being done by hand due to stalks being flattened by typhoons.

China use for corn is pegged at 275 million metric tons. For the past three to four years China has used more corn than it can grow, but the country was able to use up those old, rotten, nasty piles of corn that they had so handily secured for years. We can never get accurate, trustworthy data out of China but most in the trade believe those stockpiles are low or depleted completely, as evidence of China’s high corn prices trading near $10 a bushel.

China has strong demand for corn thanks to the hog herd rebuilding after they aftermath of African Swine Fever. Earlier this week it was announced that 12,500 new hog facilities have been built, with 13,000 facilities that had been idle, now coming back into use. I cannot even fathom what 25,500 buildings look like, let alone the amount of feed those hogs will need.

U.S. export sales to China are at 10.1 million tons. The most recent USDA report has not yet acknowledged this, still stating that the United States will export 7 million tons of corn to China. Earlier this week there were rumors circulating that China may be looking to secure as much as 30 million tons of imported corn, with 20 to 24 million tons of it coming from the United States.  I’m not going to get my hopes up. I’ll believe it when I see it.  But if this should happen, that would be NEW demand for U.S. Corn. So much so that it would take U.S. ending stocks from 2.1 billion bushels down to 1.5 to 1.8 billion bushels (depending on how much is actually sold and shipped).

Weather affecting global corn production

Around the world, weather conditions have not been perfect. In Ukraine, corn production is said to be closer to 32.5 million metric tons versus what the USDA is suggesting of 39.5 million metric tons. And with dryer soil conditions in South America, many fear the Brazil and Argentine crops will be smaller as well.

In fact, the world has its eyes on Brazil where the soybean crop is currently being planted late, which means it will likely be harvested late, which means that the 2nd crop corn or Safrinha crop will likely be planted late. The Safrinha crop in Brazil accounts for nearly 70 percent of Brazil’s total corn production, and so there is little tolerance for poor weather conditions this year.

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Watch for global ending stocks number

In the upcoming USDA reports it will be important to monitor global ending stocks. If USDA should show lower production in Ukraine, China, and even here in the United States, along with improved U.S. export demand, global ending stocks would likely decline from the current number of 300.45 million metric tons. It feels like the world already knows this though, hence the price rally, and strong export pace that started in August.

Corn futures have cleared the $4 price hurdle, with $4.25 as next resistance, with a heavy price resistance at the $4.50 level. That level has held since 2015.

With three quarters of the world’s corn grown in the northern hemisphere, along with strong demand and a South American crop that may not have record production due to adverse weather, the coming months may get very interesting.

 Reach Naomi Blohm: 800-334-9779 Twitter: @naomiblohm   and [email protected]

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

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About the Author(s)

Naomi Blohm

senior market adviser, Total Farm Marketing by Stewart Peterson

Naomi specializes at helping farmers understand how to manage cash marketing needs and understand the importance of managing basis, delivery point considerations, cash flow needs and storage capacity. She earned her Bachelor of Arts in Political Science with a minor in Agriculture Business at the University of Wisconsin in Platteville. She has a Master of Science in Adult Education with an emphasis in Ag Economics from the UW-Platteville and a Master Certificate in Global Education, from the UW-Oshkosh.

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