Porto Alegre, May 23, 2023 – Markets have gained one more ingredient in the pressures on commodity prices last week. Good economic data in the United States do not point yet to interest rate cuts anytime soon. More discreet economic data on China and the devaluation of the yuan point to difficulties in expanding demand. Commodities felt the combination of factors and showed general lows over the week. Oil does not find room for hikes, ores focus on adjusting demand in China, and agricultural commodities seek a readjustment of prices to pre-pandemic levels. Corn ended up breaking the psychological barrier of USD 5.00/bushel in view of the record pace of planting in the US Midwest and the good outlook for the weather.
Another bad week for the prices of agricultural commodities, a situation that seems to be betting on a full US crop and leaves a climate problem for the “new fact”. US funds and growers remain heavily net short on the CBOT. New facts often reverse markets too aggressively when prices focus solely on a bias. At this time, the market is centered on a bearish bias and everyone sells on the exchange. A “surprise” until September could bring sharp price movements.
For this, the “new fact” needs to emerge. The climate continues to be the main point for the market to observe potential production in the United States this year and keep the long price curve under more pressure. The weather in the US Midwest continues to be very favorable to the good pace of planting, with 65% of crops cultivated until last week, at a record level. Owing to the climate, we believe that planting will close within the established technical deadline this year.
The only weather deficiencies that are harming planting this year are in the states bordering Canada, in the upper Midwest. North Dakota, in particular, could see a strong contraction in the area of spring crops such as wheat and barley. In the west of the Midwest, where there were production losses for the last three crops, conditions are quite favorable for planting and the summer.
The corn market on CBOT has been net short for the 2023 crop since the beginning of the year. The position of funds and growers remains shorter than longer, and the market is confirming this bearish bias in view of the planting flow and the optimistic view of the weather for the summer. Late May and early June should receive good rains in all corn-growing regions and we will focus on the month of July, a concentrated period of pollination and silking this year. Good rains in July will define much of the US crop in 2023.
Thus, prices do not find room for recovery. On the contrary, they broke the psychological barrier of USD 5.00/bushel, a level considered high for the record crop projected by USDA. In years with prices coming from a trajectory of normal levels, the pressures on Chicago would be lower. Each passing week with good information about the 2023 crop, the market will continue to align its curve with the target of USD 4.30 for the December expiration.
Market segments still seem to be surprised by price lows, considering that they believed in a still speculative first semester until the 2023 US crop is confirmed. Indeed, the lows look too aggressive and premature before the weather confirms a full crop. Both corn and soybeans show expressive and even surprising price adjustments for the most bearish of analysts. Some indicators have contributed to this:
– The USDA’s very optimistic projections for the US yield;
– The sharp decline in wheat prices, which reached USD 14/bushel in 2022 and now return to levels of USD 6.50/bushel even with a bad crop in the US Plains;
– Even with the losses in the corn crop in Argentina, there has not yet been a shift in world demand for US corn. On the contrary, weekly sales are now at 38 million tons, against 58 million in 2022. It will come as no surprise if USDA cuts the US export forecast again further ahead;
– Cancellation of purchases made by China. More than one million tons canceled affect the shipment data. By the way, a customary practice in China, which has now also learned to cancel beef purchases from Brazil;
– Current favorable weather and record planting pace in the US Midwest;
– Brazil IS starting to impose its selling pressure on the international market for the second half of the year. If China announces strong purchases from Brazil to the detriment of the US market, this could be even more bearish for the CBOT;
– Ukrainian export corridor was renegotiated for another sixty days.
With In this set of information, the market will continue to price at a level below USD 5.00/bushel as the US crop sustains its great progress.
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