1. CBOTcornTrend Analysis
Previously, the CBOT U.S. wheat center of gravity moved down to a nearly 16-month low, which dragged U.S. corn to its bottom in early January. However, recently, as the Russian-Ukrainian situation worsened and concerns about Black Sea exports intensified, CBOT U.S. wheat rebounded to a near 3-month high and drove the U.S. The trend of corn; coupled with the drought in Argentina, the CBOT corn has been operating in the range of 670-688 cents per bushel since late January.
Chart 1: Daily K-line trend of US corn
Data source: Wenhua Finance International Derivatives Think Tank
2. Macro and global grain market analysis
The seasonally adjusted annual rate of CPI in the United States at the end of January was 6.4%, falling for seven consecutive months and the smallest increase since October 2021, but still higher than market expectations of 6.2%; smallest increase in months. Among them, the energy sub-item rose by 8.7% year-on-year, the first rebound after six consecutive months of decline; the food sub-item rose by 10.1% year-on-year, falling for five consecutive months but still above 10%. Although inflation continues to slow down, the high prices of energy, food, and housing still make the U.S. economy face greater inflationary pressure. The road to return to the 2% inflation target is still long and tortuous. The Fed may not stop raising interest rates in the short term. The U.S. dollar index Support was obtained after the center of gravity moved down to the 100 integer mark. Crude oil bottomed out three times, but it rebounded under the support of the escalation of the situation in Russia and Ukraine, and Russia’s plan to cut crude oil production by 500,000 barrels per day in March. However, the rising expectations of the United States to continue raising interest rates suppressed its rebound. Crude oil generally operated in the range of 70-80 US dollars .
The FAO food price index in January was 131.2 points, down 1.1 points (0.8%) month-on-month, falling for 10 consecutive months, down 17.9% from the historical peak in March 2022, mainly dragged down by lower international vegetable oil prices. Among them, the grain price index was 147.4 points, a slight increase of 0.1% month-on-month and a year-on-year increase of 6.7 points (4.8%); among the global grains, rice prices rose by 6.2% in January, corn prices rose slightly by 0.5% due to drought in South America, and wheat prices rose 0.5% in the global supply chain. Under the pressure of increasing expectations, the price of barley fell for 3 consecutive months, and the price of barley fell by 1% due to the drag of wheat. The vegetable oil price index was 140.4 points, a decrease of 4.2 points (2.9%) month-on-month and nearly 25% year-on-year. The dairy product price index hit a 12-month low, the meat price index fell for seven consecutive months, and the sugar price index stopped rising and fell.
The geography of the Black Sea is escalating. The Russian side said that unless the sanctions affecting its agricultural product exports are lifted and other issues are resolved, it will be “inappropriate” to extend the Black Sea grain agreement. After the expiration of the agreement in March, Ukraine will not only face uncertainty in grain exports , At the same time, it faces the risk of a decline in corn planting area under the constraints of chemical fertilizers and the economy in 2023. The market predicts a decline of about 20%, and CBOT grains are supported. In terms of exports, from August 2022 to January 2023, the Port of Odessa, Ukraine will export 691 ships totaling more than 19 million tons of grain through the “Grain Corridor”; the Port of Chornomorsk will export 285 ships totaling 7.3 million tons of grain. However, since the beginning of 2022-23, Ukraine’s cumulative grain exports of 29.16 million tons have decreased by 28.65% compared with 40.81 million tons in the same period of the previous year; among them, corn exports have been 7.2 million tons, a year-on-year decrease of 3.7%; wheat exports have been 10.39 million tons, a year-on-year decrease of 40.8%; Barley exports were 1.94 million tons, a year-on-year decrease of 64.8%. In its latest forecast, the IGC lowered global corn production in 2022/23 by 8 million tons to 115,300 tons, mainly due to lower forecasts for the United States and Argentina.
Chart 2-3: US CPI and FAO Food Price Index Trends
Data source: wind, FAO, international derivatives think tank
3. Analysis of the fundamentals of corn in the near future
1. The US corn export market is facing challenges
After the scheduled production in January, the market will pay more attention to the weather in South America and the export of US corn. Thanks to the purchases from countries such as China and Mexico, the demand for US corn exports has improved since January. The inspection volume of US corn exports to China in the week of January 12 hit an eight-month high. The export volume in the week of January 26 It unexpectedly surged and hit its highest level in nearly 10 weeks. However, with the opening of the Brazilian corn export market to China and its actual arrival in Hong Kong, and Mexico’s announcement to revoke the authorization and license for the import, production, distribution and use of the herbicide glyphosate and genetically modified corn and no longer approve the genetically modified corn for human consumption , the US corn export inspection volume in the week of February 2 fell to a 4-week low, and shipments to China fell to zero for the first time in more than 15 months; although the US corn export inspection volume in the week of February 9 fell from 4 Weekly lows rebounded, but shipments to China remained zero; and export sales in the week ended February 2 fell from a 10-week high, and sales to China dropped sharply. From the beginning of the year to February 9, the cumulative export inspection volume of US corn was 13,059,816 tons, compared with 20,071,512 tons in the same period last year; the cumulative export sales were 18.26 million tons, a sharp drop of 25% year-on-year, and the export shipments from the beginning of the year to early February fell year-on-year. 41%; of which 1.14 million tons were exported to China, accounting for only 6% of the total export sales.
For major importing countries, China’s corn import pattern is diversified, further expanding from the traditional channels of North America and the Black Sea region to South America; Mexico is one of the major importers of US corn, and US farmers export about 17 million tons of corn to Mexico every year. Accounting for 25-35% of the total US corn exports, most of which are genetically modified yellow corn; the adjustment of the policies, import orientation and import structure of the two major importing countries may subsequently restrict the export demand of US corn; although the USDA February report did not adjust the US corn export demand, but the 48.9 million tonnes reported in February was 19.8% lower than the first estimate in May 2022.
Although consumption estimates have fallen to a near seven-year low, the decline in key input costs such as fertilizers in the second half of 2022 will still stimulate farmers to increase corn planting. The agency estimates that the US corn planting area will increase by 2.2% to 90.5 million acres in 2023.
Chart 4: Weekly export shipments of US corn
Data source: USDA Export Sales Report International Derivatives Think Tank
Fuel ethanol production and inventories are at high levels. According to the data released by the EIA, as of February 10, the fuel ethanol production in the United States was 1.014 million barrels per day, and the daily production was above one million barrels for 5 consecutive weeks; the high production brought fuel ethanol inventories to a 10-month high of 25.34 million barrels . However, the use of corn used for fuel alcohol in December 2022 was 425.3 million bushels, a decrease of 5.5% month-on-month and 11% year-on-year; the production of corn distillers dried grains (DDGS) in December was 1.68 million tons, which was lower than the 2.073 million tons in the same period last year . In addition, Brazil resumed imposing a 16% tariff on ethanol imported from the United States, which may affect the subsequent production of fuel ethanol in the United States.
Chart 5-6: Daily production and inventory of fuel ethanol in the United States
Data source: EIA International Derivatives Think Tank
2. The planting progress of Brazil’s second crop of corn is slightly slow, and Argentina is still facing the threat of drought
In Brazil, the first batch of corn has begun to be harvested, and the second crop of corn has been planted at a slightly slower pace. According to data released by CONAB, as of February 11, the 2022/23 harvest rate of Brazil’s first crop of corn was 11%, compared with 17.5% in the same period last year; the sowing rate of second crop corn was 20.4%, compared with 35.1% in the same period last year. According to the data released by AgRural, as of February 9, Brazil’s 2022/23 first crop corn harvest progress was 14%, compared with 23% in the same period last year; the second crop corn planting rate was 25%, compared with 42% in the same period last year (of which The planting rate in Roseau State is 34%, compared with 57% in the same period last year, and the average value of 48.4% in previous years. The state’s corn production is expected to account for 46% of Brazil’s total corn production in 2022/23; the planting progress of the second crop of corn in Parana State is 4 %, compared to 19% in the same period last year). In terms of export, following the arrival of the first freighter “Iris” carrying 68,000 tons of Brazilian corn at Machong Port on January 7, and the official opening of the Brazilian corn export corridor, on January 31 it carried 51,200 tons of Brazilian corn. The bulk carrier “Apollo” safely arrived at the Jiangyin Port Wharf, marking the complete opening of my country’s import of corn from Brazil into the Yangtze River; in January 2023, Brazil’s corn will maintain a good export momentum, and CONAB expects Brazil’s corn exports in 2022/23 47 million tons, an increase of 2 million tons from the January forecast, and the USDA February report also raised Brazil’s corn export forecast. In terms of domestic consumption, on the one hand, the proportion of ethanol in Brazil’s gasoline is planned to increase to 15% or B15 in March, and on the other hand, Brazil resumes imposing a 16% tariff on ethanol imported from the United States, both of which are conducive to the increase in Brazil’s corn ethanol production , Conab expects Brazil’s total corn ethanol production in 2022/23 to increase by 30.7% to 4.5 billion liters, reaching 10 billion liters in 2030, accounting for 25% of Brazil’s total ethanol production.
Despite the recent rainfall, the threat of drought in Argentina has not been lifted. The agency’s crop inspections confirmed that crops in Argentina’s main planting areas are still experiencing high temperatures and dry weather; the Buxar Exchange predicts that the 2022/23 corn planting area in Argentina will be 7.1 million hectares, a year-on-year decrease of 7.8% ; The USDA and the Rosario Grain Exchange lowered their outlook for Argentina’s corn production by 5 million tons and 2.5 million tons, respectively, in February.
4. The USDA reported in February that the U.S. corn stock increased slightly
USDA February report: Following the January report, the USDA February report made no adjustments to the US corn supply side; only ethanol demand on the consumer side was reduced by 25 million bushels from the previous month, and the final ending inventory was revised up by 25 million bushels to 1.267 billion bushels, basically in line with the market before the report Expected 1.266 billion bushels; the average farm price was also unchanged from last month’s $6.7 per bushel.
Chart 7: US Corn Supply and Demand Balance Sheet
Data source: USDA supply and demand report, international derivatives think tank
From a global perspective, adjustments have been made in North and South America and the Black Sea region. The impact of the drought in South America has further manifested. Following the reduction in the January report, the USDA reported in February that Argentina’s corn production and exports were reduced by 5 million tons and 3 million tons respectively, and domestic consumption was reduced by 2 million tons; Brazil’s corn production has not been adjusted, and export forecasts Ukrainian corn exports are raised 2 million tons after a 3 million-ton increase reported in January; EU imports are raised 2 million tons. Global corn production is lowered by 4.57 million tons to 11.5136 million tons; the increase in U.S. corn and Brazilian corn stocks partially offsets the decline in Ukrainian corn stocks, and finally the global corn ending stock is slightly revised down by 1.14 million tons to 295.28 million tons.
Chart 8: Global Corn Supply and Demand Balance Sheet
Data source: USDA Global Corn Supply and Demand Report, International Derivatives Think Tank
5. Outlook and strategy of CBOT corn market outlook
To sum up, U.S. inflation continued to moderate in January but was less than expected. In February, the Federal Reserve raised interest rates by 25 basis points. However, the hawkish attitude indicated that the Fed will continue to raise interest rates several times. The U.S. dollar index moved down to the 100 integer mark Then rebounded; the crude oil market was turbulent, and WTI crude oil continued to operate in the range of 70-80 US dollars after bottoming out three times in early February. The deteriorating situation in Russia and Ukraine continues to threaten the export of Black Sea food security. CBOT wheat rebounded to a high in nearly 3 months and drove the trend of related grains. Brazil’s second crop corn planting progress is slightly slow, but the export channel to China has been opened, and the progress of US corn export to China has slowed down significantly. The periodic rainfall in Argentina has not effectively alleviated the drought in the core planting areas. The USDA2 report continued to lower the outlook for Argentina’s corn production; Corn stocks increased slightly but global corn supply and demand tightened slightly.
Analysts at the International Derivatives Think Tank believe that the macro and crude oil market risks have not been resolved; although the demand for corn in the United States has shrunk, global grain prices have been supported by the drought in Argentina and the spillover effect of the Black Sea; multiple factors are intertwined, and the short-to-medium term CBOT corn as a whole is at 670 -688 US dollars / bushel range, it is recommended to participate in short-term buying low and selling high within the range.
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