Uncertainty clouds the global corn picture...

Uncertainty clouds the global corn picture...

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Global grain markets spent last week pre-empting the thoughts of the number crunchers at the United States Department of Agriculture.

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Global grain markets spent last week pre-empting the thoughts of the number crunchers at the United States Department of Agriculture, and when the latest World Agricultural Supply and Demand Estimates (WASDE) report was released Friday of last week, the contents were largely as the trade had anticipated.

The wheat news was bearish with Sonny Perdue's team increasing global production by 4.5 million metric tonne (MMT) to 770.5MMT.

The big movers were Australia, up 2.5MMT to 28.5MMT, Canada up 2MMT to 36MMT, The European Union up 0.7MMT to 136.2MMT, India up 0.4MMT to 107.6MMT and Argentina down 1MMT to 19.5MMT.

The big surprise, however, was forgetting to change Russian wheat production. At 78MMT, it is well below most industry estimates with Russian agriculture consultancy SovEcon raising their forecast by another 0.7MMT last week to 83.3MT on the back of better than expected spring wheat yields in Siberia.

The larger crops in Australia and Canada led to increases in export projections of 1.5MMT and 0.5MMT to 19MMT and 25MMT, respectively. Argentina's export expectations were lowered by 0.5MMT to 13.5MMT.

The majority of the net increase was absorbed by China; import projections increased by 1MMT.

A minor increase in global wheat demand has pushed projected ending stocks 2.6MMT higher, primarily in major export origins.

World barley production was also increased with the USDA pegging global output at 157MMT, up 4.2MMT compared to the previous month's report.

Russia caught most of the change following a big jump in yield, adding 3MMT to production, which is now forecast at 20.3MMT.

The other changes were a 0.3MMT increase down under to 10.5MMT and a rise of 0.8MMT in the EU harvest to 63.3MMT.

The global sorghum picture was very similar to that of July, with production unchanged at 60.3MMT. The US crop was decreased by 0.3MMT to 9.1MMT, but this was entirely offset by an identical increase in Australian output to 1.7MMT.

World export forecasts are unchanged at 8.1MMT, 6.7MMT of which is out of the US with 0.5MMT expected to be shipped from each of Argentina and Australia. China is the biggest importer at 6.1MMT.

There were no real surprises in the soybean numbers with the world crop down 0.7MMT to 369.7MMT. US production was decreased by 3MMT to 117.4MMT on the back of lower yields and the Brazil crop, which is yet to be planted, was increased by 2MMT to a record 133MMT.

The decrease in US soybean yields from 3.58 metric tonne per hectare (MT/ha) to 3.49MT/ha was in line with industry expectations.

But with a number of global production issues and demand uncertainty, particularly from China, most eyes went straight to the USDA's prognostications on corn when the report hit the screens last week. Global output was posted at a record 1,162MMT, down 8.6MMT from the USDA's July estimate.

As the US harvest rapidly approaches, the WASDE corn yield came in at 11.2MT/ha, against the July estimate of 11.4MT/ha.

This may seem a small decrease, but when coupled with a 0.5 million hectare reduction in the harvested area due to the storm that lashed Iowa last month, it lops 9.6MMT off US production to 378.5MMT.

Elsewhere, the Brazilian corn crop is forecast at a record 110MMT, up 3MMT compared to August, the Russian crop was cut by 0.3MMT to 15MMT, and EU output was 1.5MMT lower at 66.3MMT.

The harvest of major Black Sea exporter Ukraine was trimmed by 1MMT to 38.5MT on the back of persistent dry weather, but that looks high compared to local analyst ProAgro who called the crop 4.5MMT lower again at just 34MMT.

On the demand side of the equation, the global picture came in unchanged. However, drilling down into the supply and demand matrix, there were some fundamental changes.

US consumption was cut by 5.1MMT as lower ethanol demand projections due to COVID-19 are realised. On the other hand, Brazilian demand was increased by 2MMT.

However, the trade was left baffled by the China corn numbers. Many think that Sonny's merry men are asleep at the wheel when it comes to the Middle Kingdom.

They did increase Chinese corn consumption by 2MMT to 279MMT but left production and imports unchanged at 260MMT and 7MMT respectively.

This is despite concerns mounting over new crop Chinese corn production this month after three typhoons hit the country's primary corn-growing region in quick succession over a twenty-day period, levelling crops, flooding low-lying warehouses and pushing domestic corn prices to their highest level in five years.

The full extent of the storm damage is not yet known, but analysts are expecting corn output in the key producing provinces of Heilongjiang and Jilin to be severely affected.

Shenzhen based futures broker and private analyst Chaos Ternary put the losses in the aforementioned provinces at 5.88MMT and 1.68MMT respectively.

And the massive corn auction program over the last four months has almost exhausted China's corn reserves forcing consumers to substitute corn with up to 20MMT of feed wheat and rice ahead of their harvest.

When it comes to China's corn imports in the 2020/21 marketing year, it seems that the right hand doesn't know what the left hand is doing along the hallowed corridors of the USDA at the moment. Leaving import projections at 7MMT when Beijing already has 8.8MMT of confirmed new crop US corn purchases on their books was very strange. And sales of new crop Ukraine corn to China already exceed 3MMT.

Global marketers are expecting corn shipments to China to be at least double the USDA projection, the majority are probably closer to triple, and some are even suggesting more than four times the WASDE number at 30MMT.

The global corn balance sheet is littered with questions and uncertainty at the moment, and this will be a crucial driver of international grain markets as we move into the northern hemisphere fall and the row crop harvest season.

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