Wheat Rallies with Export Constraints and New Crop Supply Concerns

CORN

In the January WASDE reports, the unexpectedly steep reduction in the US corn yield, coupled with further tightening of the US bean carry-out intensified the 21/22 US spring acreage battle. The bean/corn ratio for the September contract has since fallen back to 2.59, though still at an elevated level, favoring bean acreage.

Higher corn prices are expected to ration global demand. The 100 mbu reduction in the US corn exports by the WASDE reflected shorter supply and global demand rationing. Stronger corn imports from China were more than offset by weaker import demand elsewhere, leaving global trade down 3.3 mmt from the previous estimates.

With La Nina, the Brazil Safrinha corn planting window has shortened. This is likely to impact the Brazil corn supply and exacerbate the tighter carry-out in the northern hemisphere. The USDA lowered new crop South American corn production by 2.5 mmt across Argentina and Brazil.

Argentina has been maximizing the 30 tmt/day corn export limit since January, having loaded more than 0.5 mmt so far. Ukraine loadings slowed precipitously since January while Brazil and US loadings have picked up the slack.

Brazil and Argentina Corn Loadings Seasonality 

WHEAT

US winter wheat planted area for 2021 is estimated at 32.0 million acres, up 5% from 2020 and up 2% from 2019, the fourth lowest on record. All four major US wheat classes rallied in prices with strong export and domestic demand.

The Argentine wheat harvest is largely completed, while the USDA lowered the crop by 0.5 mmt, reducing it to the smallest in 5 years. A rumored export tax further took a toll on the Argentine wheat exports.

The USDA has left the 20/21 global wheat trade largely unchanged, with higher Chinese imports for feed caused by domestic corn shortages largely offset by lower MENA.

Black Sea loadings slowed with the new export quota, with some demand being switched to the EU, though Black Sea loadings for 20/21 will remain a record.

OILSEEDS

Argentinian bean exports have fully stopped since December while Brazilian soybean loadings have also tanked during the old/new transition period. US loadings are taking share from South America, exacerbating tighter US carry-out expectations.

Brazil new crop beans have gained in competitiveness, with a bumper harvest expectation. While the January WASDE left the Brazil production unchanged, precipitation needs to improve to prevent a reduction.

Argentina suffers from poor crushing economics with ongoing strikes. January meal loadings remained lower YoY while soyoil premium to the US reached a 5-year high. Brazil soymeal loadings slowed in December as domestic bean supply tightened both for crush and exports.

Agencies have estimated an upside of 2 mln increase YOY in the US corn+bean acreage pool, with beans reaching as high as 92 mln acres, while harvested acreage could increase by as much as 8 mln acres.

The USDA lowered US soybean stocks by 35 mbu from the December estimates, largely in line with the average market estimate, led by lower production.