20 May 2021

Corn has been the leading commodity during the recent price rally, initiated 8 months ago. It will remain the key price driver for the grain markets for a while. So, what matters for the corn market, matters for our grain prices in the UK and Europe.

Over the past week, corn prices dropped 17%, seven days in a row. It all started when the USDA published the very first forecast for new crop world stocks using what we consider, at this early stage, optimistic assumptions. Weather conditions would need to be ideal throughout the growing season for these forecasts to be achieved. Possible but not yet certain. Furthermore the world stock to use ratio would still remain at a very low level of 10.2%, very close to 2020/21.

Record yields and larger acreage for US corn, 103Mt for Brazil (when the market is already at or below 95Mt) and thus higher than expected ending stocks. Yet, even if we doubt these forecasts are realistic, traders have massively sold the USDA 2021/22 forecast. Funds have largely reduced their long position, but commercials are considering these lower levels to buy into the lows. So, is it a short-term consolidation or a real change of trend?
An excellent weather forecast for the next two weeks in the US, Canada, Europe and the Black Sea, a strong planting pace and therefore, improving grain production potential continue to look favourable for crop development and for the possibility of increased planted area in the US. However, the market has seen a very sharp break in the past few days and the good weather may be already «priced». Technical indicators are now oversold. If we consider that many risks are still ahead of us, it is clearly far too soon to draw any conclusion. At this stage and in a very volatile market environment, we therefore believe it is too early to talk about a real change of trend.

Nevertheless, it is always very instructive to look at the past to predict the future. Looking back at 2008 and 2012, the change of trend was sudden. Markets always anticipate. Indeed many are already looking at 2022, predicting massive production figures in Brazil and Argentina that could reduce tightness in the global grain balance sheet. Rarely prices climb to current levels. They do so with the only intention to ration and destroy demand.

With wheat now trading well above corn and some tangible signs of demand rationing starting to appear, we do need to be extra cautious. It is probably not a good time for farmers to be too “greedy” and be prepared to sell on any probable technical rebound. However bearing in mind, that any corn crop failure in the US or Ukraine would certainly take prices to unprecedented levels. Weather market will remain the king until at least end of July 2021…

Sébastien Mallet