MARKETS:
Corn Spreads to The Edge of Reality UPDATE 2
Coarse grain markets are likely closer to feeling the full brunt of heavier supply.
SUMMARY
- Burgeoning supply caused corn calendar spreads to trade very low levels.
- We are now near the time when season lows are usually set.
- There’s a case that the low might come later than usual this season.
- The market will only feel the full brunt of extra supply when Brazil’s corn export pace rises.
- Brazil’s acceleration might now have started.
- So, the catalyst for new lows is nearby.
- A US Dollar caveat applies.
Corn Spreads to The Edge of Reality UPDATE 2
We have been expecting corn futures’ spreads to weaken (see original, update) until August. Spreads have duly weakened to very low levels, although not quite to new record lows. We are around the time of year when prices and spreads usually make their season lows. So, further weakness in spreads now becomes less likely. Every season, though, is different from the ‘average’ or ‘normal’ season. Here, we think-test the proposition that season lows will be set later than usual in 2025.
The Big Easing
Global coarse grain supply conditions have eased towards neutral. Brazil’s season 2024 corn crop is much larger than first forecast. And, the US’ season 2025 crop is likely to be very large. 2025 crops across Europe, Ukraine and Russia are likely to be below first forecasts. But those losses are a modest offset to the additions from Brazil and the US.
US fast, Brazil slow
The US is making fast progress on exporting all that corn. Season 2024 exports are running a little above USDA projections. And season 2025 export sales are running at a much faster pace than in recent years. Brazil, by contrast, is making slow progress. One reason is that Brazil’s corn harvesting was behind schedule, shunted there by late soybean planting last year. Another is the prioritisation of soybean exports. The Trade War has diverted all of China’s soybean purchases to South America, and especially Brazil. Brazil’s slow exports mean the full brunt of all that extra corn supply has not yet hit the market. And the period where Brazil is a motivated seller likely lingers longer than usual. Perhaps overlapping more with new-crop US supply.
US fast, Brazil fast
The full brunt’s moment might be nearby. Brazil’s corn exports have, reportedly, started to accelerate over the past fortnight or so. Still faster Brazil exports would confirm the brunt’s arrival. As would slower US export sales. Lower prices (by 25-30US¢/bl) would likely be the result. And so too, potentially, corn futures spreads.
US Dollar Caveat
The US Dollar is an important caveat. The greenback can play a significant role because the likely price adjustment is not large. The US Dollar has weakened this year, and many presume that decline will, gently, continue. And perhaps it will, which would work against lower prices and spreads. However, because of the sensitivity and short time horizon, the caveat also includes a US Dollar rise.
