International market of corn focuses on climate and potential purchases by China

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     Porto Alegre, November 23, 2020 – Corn prices remain firm on the Chicago Board of Trade (CBOT). The December contract reached its annual high last week, following the surprising and bullish USDA’s November report. The big point of discussion now is the significant estimate of U.S. exports in this business year, which would only be possible through strong purchases by China and/or serious production problems in South America. So, the market waits for China to resume purchases of U.S. corn so that the USDA’s projections are confirmed. It is not yet possible to say whether the Brazilian crop losses will have any impact on prices on the CBOT, but certainly Brazilian imports may be a bullish factor.

     The USDA’s November report brought a significant surprise to the international market, that is, a cut in production and consequently in final corn stocks. Stocks dropped 43 million tons and not an obvious problem for the local and global supply, but they are their lowest level since 2013. This fact has generated a potentially bullish environment where some indicators may stand out from now on, such as:

     – Lower stocks impose pressure on the planting of the 2021 crop in the United States;

     – Higher soybean prices, at the highest level of the year, and lower stocks, the lowest since 2016, reflect greater competition for acreage in the next planting, which requires corn prices to be still high and competitive;

     – The climate scenario in South America, mainly in Argentina, could put soybean prices at even higher levels and force corn to a price curve above the level of USD 4.30/bushel on the CBOT. This is not due to corn losses in Argentina but to the need to monitor the price of soybeans to guarantee good planting intentions in the United States in 2021;

     – Potential imports from China are the demand indicator for this business year. An international environment was created suggesting that China would become a big permanent importer of corn from the United States. This assessment will need to be confirmed in the real market rather than only with projections. For the time being, there is no major new movement in prices and intention to import from China in the short term;

     – Another important point is that Brazil already has strong losses in the summer corn crop and will need to adopt import measures throughout the first half of 2021. We do not know whether this will be enough to cause new highs on the CBOT, but it will undoubtedly be a major new buyer of U.S. corn;

     – The wheat market has been one of the support points of corn on the international market. Wheat fluctuates around USD 6.00/bushel but remains close to the highs in Europe, awaiting the definition of the Russian crop. The volatility of wheat prices will also drive corn prices.

     Agência SAFRAS Latam

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