A little over a year ago the USDA had the corn balance sheet supporting an estimated 3.3-billion-bushel carryout. Today we might be lucky to have a billion-bushel corn carryout for the current marketing year. With that being said, July corn futures were down almost 90 cents last week, which begs the question, “are the highs in?” That is a great question. If we take a closer look at the most recent USDA report, we will note year-to-year corn production increases of 630 million bushels (mbu), 283 mbu and 157 mbu are forecast for Brazil, Ukraine and Argentina, respectively.
If realized, major corn competitors with the U.S. will have their largest exportable surplus on record, soaring nearly 20% or 738 million bushels in 2021/22 to 4.7 billion bushels (bbu).
In response, USDA forecasts a 325 mbu decline in U.S. corn exports to 2.450 bbu. U.S. corn ending stocks for 2021/22 are forecast at 1.507 bbu—up 20% from 1.257 bbu in 2020/21.
A similar trend emerged for beans; USDA is projecting production increases of 293 mbu and 184 mbu for Brazil and Argentina, respectively. U.S. soybean exports for 2021/22 are pegged to decline 205 mbu compared to 2020/21. Ending stocks for 2021/22 are estimated at 140 mbu versus 120 mbu for the current crop year.
China forecast to remain record importer of corn and soybeans
Import needs for China was another key question going into the report. In its first look at 2021/22, USDA indicated China will remain a strong importer of corn and soybeans. Corn imports by China from all origins were pegged at 1.025 bbu, which is unchanged from the record level projected for 2020/21. Soybean imports, meanwhile, were forecast at a record 3.785 bbu—up 3% from 2020/21. What remains to be seen, however, is what percentage of those imports the U.S. will capture next year.
On the horizon
Fund speculative longs in corn cut their length by over 56,000 contracts week-over-week, while soybeans futures and options from the managed money crowd added over 3,000 contracts. Inflation chatter along with a possible commodity super-cycle continues to drive headlines in the ag and commodity space. The list of potentially disruptive market factors continues to be daunting, especially as we approach the most critical and usually volatile time of the year.
One thing we do know for certain is that demand has and will be unrelenting. When we look across the major demand classes for corn and soybeans, we still see margin structure “in the green.” So, while we cannot say exactly where prices are headed or if, in fact, the high is in, we do know that volatility will persist.
As a student of the market, you know that price prediction is impossible. Working closely with your Advance Trading advisor to implement a risk management strategy that provides downside price protection, but flexibility to participate in market strength, is prudent.