A Long Tale with Many Questions and Few Answers

Jul 20, 2022

Zack Gardner
Grain Marketing & Origination Specialist

When Russia invaded Ukraine in February, it effectively removed 14 percent of the worlds available corn supply. These events essentially left no room for error in either the U.S. or Brazil’s corn crops. At face value today, we have a great looking crop, but we’re nowhere near having this crop in the bin and there are a lot of questions that I don’t think we will have answers to for quite some time.

The first set of questions surrounds Brazil’s corn crop. Brazil caught up on rain as growers tried to harvest their  soybeans (their first crop): once they planted their corn (their second or safrinhacrop), the rain shut off and it turned dry down in Brazil. Everyone knows that it’s been dry down in Brazil, but I haven’t been hearing headlines such as, “Driest in 40 years,” like we did last year. Over the past couple of years here in the US, it has appeared that slightly dry conditions are better for growing a crop than adequate moisture. I’m wondering if this will also be applicable to Brazil’s corn crop this year.

As curious as I am to know how good the Brazil crop is going to be this year, I doubt we’ll ever truly find out for two reasons:
  1. Our economic policy will have a greater effect on Brazil’s corn exports this year than their actual crop conditions. The U.S. Federal Reserve changing interest rates has a direct impact on the value of our currency and thus the currency relationship between the U.S. dollar and the Brazilian real. As our dollar gets stronger, the Brazilian real gets weaker. As the real gets weaker, Brazilian corn gets cheaper to the rest of the world, regardless of how their corn crop is doing.
  2. CONAB (Brazil’s version of the USDA) raised their corn production estimate this past month. Normally, I would say this provides valuable insight, but when you comb through their production estimate from this past month, you’ll notice the increase in Brazilian corn production didn’t come from a yield adjustment. The change in their corn production estimate came from finding more acres! As if figuring out Brazil’s actual yield wasn’t hard enough, they don’t even know their corn acre number! Multiplying a question mark (yield) by another question mark (acres), gets us no closer to knowing what their corn crop will actually be.
The next set of questions surrounds the U.S. corn crop. As noted earlier, at face value, we have a great looking crop. We’re now getting the heat units that we need and there’s moisture in the seven day forecast. My immediate question is whether or not we continue to get the timely rains to avert this 90+ degree heat. After that, it’s what the June 30th report will hold for us, which is traditionally a big acreage report.

Here is why I am skeptical and think we will be left with more questions than answers: the market is incentivizing farmers to plant late. As of the second week of June, there were still a tremendous amount of unplanted acres. If it takes a couple weeks to gather the acreage data for the June 30th report, will the acres that the USDA gives us accurately reflect what happened to the 2.7 million corn acres and 10.9 million soybeans acres that hadn’t been planted as of June 13th in the U.S.? What happens to those last 2.7 million acres of unplanted corn will have a huge impact on our balance sheet. Do they switch to soybeans? Spring wheat? Or does the northern plains farmer take prevent plant on those acres? How will the USDA know any of this in time for the June 30th report?

Once we get past that report, we still probably won’t have answers. The 90 day forecast from NOAA is hot and dry, plus, the USDA doesn’t use the acreage certifications from crop insurance that get turned in mid-July. We’ll probably have a slight increase in Ukrainian grain exports to some level above zero but still nowhere close to ideal. All we know is that it will be a tall order to make up for the missing 14 percent of the worlds corn supply that’s held up in Ukraine.

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