Solving corn

New Delhi — Brazil’s soybean crush volumes are expected to remain elevated in 2021 on high demand, while the outlook for Argentina’s crushing industry is precarious as Buenos Aires grapples with recession and more than $323 billion of mounting debt.

Brazilian crushers’ sales soared for most of 2020 due to high domestic and export demand, while Argentina’s crushers grappled with labor strikes, high taxes, negative margins, tight raw beans supply and logistical bottlenecks, analysts said, predicting similar trends for the two nations in 2021.

They key challenge for the Argentinian processors in 2021 is likely to be a low or even negative crush margin due to soaring input and logistical costs, a Rosario-based economist said. Argentinian soybean prices, which rose almost 88% year on year to $341/mt in December 2020, are expected to continue surging in 2021, putting margins under tremendous pressure, she said.

The world’s largest soy meal and oil exporter is also expected to ship low volumes of soy product in 2021 due to high export taxes of 31%.

Argentina typically exports over 90% of its soy products, according to Pete Meyer, head of grain and oilseed analytics at S&P Global Platts. But high export taxes are likely to bring down the export volume markedly, he said.

In addition, crushers in Argentina are expected to face a supply crunch for raw soybeans in 2021, as the government’s currency control policies discourage farmers from selling.

According to economists, the gap between official and unofficial exchange rates in Argentina ended 2020 at close to 75 pesos per US$ and was likely to widen to 100 pesos in the second half of 2021.

Once the currency control measures are lifted and the two exchange rates converge, the peso could devalue more than 110% against the US$, leading to higher profits for soy farmers, a Chicago-based analyst said. Consequently, soybean hoarding is likely to be rampant in 2021, stoking tight supply concerns for the crushing industry, he said.

Dry weather is also seen tightening the supply situation in 2021. La Nina, a drought-inducing weather phenomenon, is widely seen limiting Argentinian soybean output to 46 million mt in the 2020-21 marketing year (October-September), down 11% from initial estimates.

Tight supply concerns have already started to impact prices.

The soybean meal FOB Up River outright price was estimated at $503.09/mt Dec. 31, the highest since the assessment launched in Sep. 2019, while the soybean oil FOB Up River outright price ended the year at $1,033.97/mt, its second-highest level since inauguration, according to Platts assessments.

Argentina’s domestic crush is projected at 39 million mt in the 2020-21 marketing year, edging up 0.06% year on year, according to the US Department of Agriculture. While soy meal exports are forecast to fall 2.5% over the same period to 26.7 million mt, soy oil shipments are seen rising 4.6% to 5.65 million mt, USDA added.

Analysts expect the projections to be revised down in coming months due to the constraints faced by Argentinian crushers in 2021.

BRAZILIAN CRUSH MOMENTUM HIGH

In a stark contrast to Argentina, analysts see sustained momentum for a high crush output in Brazil in 2021, despite the soaring input cost of raw beans.

The average price of Brazilian beans is projected to rise over 20% year on year in 2021 due to tight supply, a Goiania-based consultant said. However, the crush volume is likely to remain elevated on high prices and strong demand momentum as the global economy recovers from the pandemic, she added.

The soybean meal FOB Paranagua outright price was estimated at $500.89/mt Dec. 31, the highest since the assessment was launched in March 2020, while the soybean oil FOB Paranagua outright price ended the year at $1056.02/mt, its second highest level since inauguration, according to Platts assessments.

Brazilian national agricultural entity Conab said the country’s crushers faced high demand in 2019-20, with crush estimates at 48.9 million mt, up 10% on year. Domestic crush demand in 2020-21 is expected to remain high at 49 million mt due to a thriving meat industry and higher biodiesel mixture requirements, it added.

Analysts also anticipate stronger domestic demand curtailing exports of Brazilian soy meal and oil in 2021.

Brazil is forecast to export 16.8 million mt of soybean meal and 1.15 million mt of soy oil in 2020-21, down 7% and 9% on year, respectively, according to the USDA’s December report.

The increase in domestic demand for soybean products is based on the expectation of economic recovery in 2021, which should drive soy oil and meal consumption, a Chicago-based agricultural consultant said. Brazilian beef and pork production is expected to rise due to continued strong exports to China and improved domestic demand, he added.

A higher blending mandate is also expected to boost biodiesel demand in Brazil in 2021. The mandate is set to increase to B13 (13% blend rate) in March 2021 from the current B12.

Soybean meal is extensively used in animal feed, while soybean oil comprises over 80% of the vegetable oil used for biodiesel production in Brazil.

Singapore — CFR Northeast Asia corn prices for cargoes arriving between April and May, has surged to a near 2 1/2-month high of $268.25/mt on Jan. 7, or up 3.2% from the monthly average of $260.25/mt in December, Platts data showed, propelled by the rally in CBOT corn futures.

In the first four days of the new year, Asian corn prices have outperformed last year’s uptrend, extending a climb which began in May 2020. The Asian corn marker had reached its 2020 peak of $263.25/mt on Oct. 27.

The persistent uptrend is due to many factors, but least of all demand.

The futures rally has kept South Korean buyers mum on their private and tender purchases in the past few weeks. The last time feedmillers in South Korea procured a corn cargo was on Dec. 9 when the Feed Leaders Committee booked 65,000 mt from Louis Dreyfus Co. at $235.95/mt CFR for July delivery. The cargo origins were optional first-half June from US PNW or May shipment from South America. Based on the Jan. 6 close of the July CBOT futures contract at $4.94/bushel, the same cargo from the US PNW is valued at least $270/mt CFR Jan. 8, or around 14.4% higher, which explains buyers’ reluctance to make a move.

Freight costs have also firmed tracking the strength in crude oil markers. Panamax cargoes moving from US PNW to South Korea were priced at $23/mt in December, but is currently $2/mt higher, trading sources said. Over at the US Gulf Coast, barge costs in the Mississippi are on the rise and the market is taking this as a signal that demand is also on the rise, a market source noted.

Meanwhile, alternative feedgrain prices are providing corn with additional support. Feedwheat prices are equally strong and the last time it was sold in Asia was on Dec. 16, S&P Global Platts reported previously. A cargo was sold to a Thai buyer at $277.50/mt CFR. Since then, feedwheat inquiries have dried up and it is offered at around $290s/mt CFR South Korea on Jan. 7 for May-June arrival, market sources said.

Front-month CBOT March futures have added 70 cents, or 16.5%, month on month, to settle at $4.94/bu on Jan. 6. Market sources said managed funds are long corn futures by over 350,000 contracts, with about 80,000 contracts added in the past two weeks based on the Commitment of Traders’ report.

CME raises margins on grains futures

In light of the recent rally in grain futures, the CME Group has raised the maintenance margins for the nearby three corn futures with effect from Jan. 6, a company source said. Maintenance margins for March corn futures were raised to $1,100 per contract up from $975/contract with effect from Jan. 6. The May and July corn futures margin was raised to $ 1,050/contract and $1,000/contract, respectively, up from $975. The margin requirements were raised when futures base prices rose and when markets became more volatile. The margin increments are also for soybean meal, soybean oil, wheat, but the biggest hike was for the January soybean futures at $350 to $2,750/contract.

Prompt corn demand keeping buyers busy

Demand for January shipments has, however, gripped the Asian market in the past week following delays in Argentina. Buyers are scrambling to cover their shorts with Black Sea or US corn, market sources said. Vietnam was reportedly in the market covering prompt shipments with some Burmese corn.

However, it is not clear how many cargoes are affected by the Argentina strikes, which are ongoing since November 2020. Nevertheless, traders are expecting to see more short covering. Argentina’s corn export ban that is due to expire on March 1, 2021 is not affecting new crop shipments, which will start March-April, market sources said. However, the uncertainty of loadings there is keeping many doubtful.

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London — After experiencing a tumultuous year during 2020, the corn market in 2021 is going to see lower exports from Ukraine, a key producer, due to drop in the production.

The outbreak of the coronavirus pandemic followed by severe droughts within the corn producing regions of the Black Sea and the US, lifted corn prices toward the end of 2020, while volatility plagued the market.

Drop in Ukrainian production resulted in a series of defaults on forward contracts by farmers. Defaults on signed summer offers to supply corn in October through December prompted exporters to cover some of their short positions in the FOB market. As a result, corn prices rose to 6-year high of $239.50/mt on Oct. 27 from this year’s low of $166.75 on Aug. 12. In addition, strong international demand tightened the already constricted market as China imported record volumes of corn. Moving toward the New Year, the trend is unlikely to slow down.

Ukraine has been a major contributor to the supply of global corn. It produced 35.81 million mt during the record 2019-20 season, according to the US Department of Agriculture (USDA).

However, the situation has changed this year due to unfavorable weather conditions undermining the yields. Ukraine experienced a severe drought in the main grain producing regions throughout August and September during which substantial growing of crop takes place.

The production for the 2020-21 marketing year (Sept. 1, 2020 to Aug. 31 2021) is estimated at 29.5 million mt by USDA. This drop in production will result in lower exports for the 2020-21 marketing year. The USDA estimates Ukrainian exports at 24 million mt, a decline of 17% year on year, for 2020-21 marketing year in its December World Agricultural Supply and Demand Estimates.

Ukraine exported 8.34 million mt of corn as of Dec. 23, according to the agriculture ministry, which is 2.63 million mt, or 24% lower than the same period last year.

Ukrainian exports into the EU dropped 56% to 2.06 million mt as of Dec. 20, data from EU crop observatory showed.

Along with Ukraine, lower exports from Russia is also helping boost the prices. Russian exports are expected to drop to 3.1 million mt this year from 4.07 million mt over last season, as per USDA estimates.

According to Platts Analytics, Russian corn production in 2020-21 is estimated at 14.8 million mt. By Dec. 10, Russian farmers had harvested 14.3 million mt of corn from 97% of planted area, according to the Russian agriculture ministry. This compares to a total production of 14.28 million mt last marketing year.

UKRAINE LOSING COMPETITIVENESS
This rise in Ukrainian corn prices have undermined the competitiveness of the Ukrainian origin.

Ukrainian corn is facing strong competition from the US at some destinations while South American origins will enter the market in the second quarter of 2021.

At the same time, international demand remains strong, from China in particular.

Demand for corn in the major consuming countries is likely to see a steady rise in the ongoing year. World imports of corn are expected to rise by 14.25 million mt from the 2019-20 marketing year to 179.57 million mt in the 2020-21 marketing year, according to USDA’s December WASDE report.

China, which has been in the headlines for its higher corn imports is likely to consume 282 million mt of corn in the 2020-21 marketing year, much higher than the last five-year’s average of 248.3 million mt.

China’s imports for the current marketing year is estimated to more than doubled to 16.5 million mt from last marketing year’s 7.6 million mt, as per USDA. However, some market players say this number is still underestimated as China may need to import more corn to restore internal stocks and increase the hogs population, potentially rising to as high as 30 million mt.

Traditionally China has imported large volumes of corn from the US, however recent trade tensions between the US and China have encouraged China to look elsewhere to fulfill their corn demand. But, as the Biden administration prepares to take office in the US, foreign policy relating to China is still unclear, potentially improving US-China relations.

Demand in other consuming regions — Southeast Asia, and the EU is also likely to see a rise this year. Southeast Asia is likely to consume 48.4 million mt of corn in 2020-21, higher than the five-year average of 43.62 million mt. In the EU, consumption is seen at 81.5 million mt, higher than the last five-year average of 78.18 million mt.

US corn production estimates for 2020-21 have fallen by 9.3% in the past six months to 14.5 billion bushels (368.49 million mt).

Amid the lower production estimates in Ukraine and the US, Brazil is expected to enter the international corn market in Q2 2021. For Brazil, the USDA in its December WASDE report estimates 2020-21 production to be at record 110 million mt, around 8 million mt higher year on year.

London — European market participants anticipate that a recent temporary reduction in Turkish rice import tariffs is likely to increase Japonica sales from the continent.

The Turkish Grain Board, or TMO, confirmed to S&P Global Platts that the import tariffs on paddy, brown and milled rice have been lowered from 34%, 36% and 45% to 5%, 10% and 15%, respectively, until April 30. While Turkish production in 2020 decreased slightly year on year, the TMO cited the weakness of the lira against the dollar as the primary rationale behind the policy. The lira is 22% weaker against the dollar year on year, as of Jan. 11, and 63% weaker than it was five years ago.

The temporary change in policy is likely to benefit European exporters in particular due to the relatively small window of opportunity to benefit from the policy, in addition to adequate stocks on the continent. According to multiple brokers, inquiries for Italian Baldo rice have spiked in recent days. One such broker remarked that while Turkish buyers had been resisting offers of milled Baldo at around Eur840-860/mt CFR Mersin in the run up to the tariff reduction, buyers are now eager to conclude trade at these levels. Other European origins, such as Greece, are also likely to benefit from the policy.

An additional 25% retaliatory import tariff on US rice remains in place, which is likely to limit sales of Californian medium grain during this four-month window. However, one participant involved in large volume paddy sales to Turkey in the past remarked to Platts that they “don’t see any business happening anytime soon from California to Turkey, even if the retaliatory duty was removed” due to uncompetitive Calrose prices.

While Japonica rice exporters in South America would also typically benefit from this sort of reduction, they are unlikely to this time around due to tight stocks ahead of harvesting. According to a major Uruguayan exporter, Turkish inquiries have increased in recent days, but it is “not possible” for new crop to arrive in Turkey by April 30 and they “have no stock” left to sell.

Due to the increasing price sensitivity in the Turkish market, sellers of Chinese old crop Japonica and Russian Rapan rice will also likely benefit from the policy. While Indian Swarna rice exporters could also benefit, ongoing container shortages in the country are likely to delay execution, making it doubtful that Indian rice could reach Turkey by April 30.