In the latest February USDA report, China’s ascendance to be the world’s largest feed grain buyer was confirmed, with 2020/21 corn imports raised from 17.5mmt to 24mmt along with overall feed grain imports near 50mmt. However the USDA (wrongly, in our view) added the imports to stocks and offset global import increases by cutting demand in the EU. Furthermore and most importantly, US export figures were only increased by just over 1Mt when traders reported 6Mt of sales just 2 weeks ago!
Traders considered these figures as bearish and global prices are now consolidating, taking a healthy breath as they had anticipated a much more bullish report!
We believe these figures are not fully reflecting the market reality and that the March report will have to take into account the recent sales (along with those to come). We also reject the USDA view that the EU feed complex will fully replace corn imports with wheat!
Consequently we consider that the current price decrease should soon be followed by a price recovery and the $6 level for CBOT Corn could be reached in March.
With the current very low stock levels, ongoing production risks in S America, the very high level of domestic Chinese prices (cf graph below) along with the imminent start to the US planting season, prices will remain very sensitive to any potential event that could further reduce the world balance sheets for global grain and oilseeds.
As a result, we will be following very closely the current soya harvest in Brazil (already very delayed), weather in Argentina (too dry), US planting conditions and of course Chinese purchases.
Price volatility should remain extreme, with a supportive underlying trend. As seen in recent weeks, any drop off in prices will likely be met by a flood of tenders. The rally might well not be over, yet!