By Karl Setzer

 Chinese officials have announced plans to start stockpiling grains in an effort to provide the country more food security. China claims it wishes to build its corn reserves to total 70 percent of the global reserves. For wheat, the country wants an inventory that is 50 percent of the world supply. China hopes to have this accomplished by mid-2022. This projection seems aggressive given the rising costs of grains in the global market and the fact world inventories are already being rationed.

The Brazilian corn supply is expected to tighten considerably this year. Analysts believe Brazil’s corn supply will drop to 29 million metric tons (mmt) by this coming February when the country starts is first crop harvest. This is 15 percent less than the USDA is predicting and would be the lowest on record. Brazilian farmers cut back on their initial corn plantings this year and are going to focus more on the Safrinha crop, which may end up generating a larger overall corn crop for the country, especially if timely rains return.

Even with drought being reported in South America and the threat of an ongoing La Nina event, very little old crop rationing has taken place, especially on corn. Last week Brazil and Argentina loaded out a reported 1.19 mmt of corn. This was well above the U.S. corn loading volume of 719,000 metric tons, and even more than the Ukraine’s 10.4 mmt. These ongoing sales and loadings are starting to raise questions over the actual demand we see for U.S. corn.

The question now is how long we may see competition from South American corn in the global market, mainly from Brazil, where production was hurt the most from last year’s La Nina. There are currently enough vessels lined up at Brazilian ports to load out 3.4 mmt of corn. This is nearly twice the volume that was waiting to load from a year ago. Typically, we see Brazilian corn exports decline from now until late spring when the Safrinha crop is harvested. This should open a window for more U.S. sales.

While dry conditions continue to be reported in Southern Brazil, excess moisture is being received in central and northern states of the country. The initial reaction is that this moisture is benefiting crop potential, and while this is true, it is also causing some concern. The main one of these is elevated mold in soybeans. A high number of reports of soybean mold are coming in, with some showing soybeans rotting in the pods. These reports are adding uncertainty to total Brazilian production.

One favorable factor so far in this year’s Brazilian soybean crop is minimal Asian Rust Fungus cases. So far only seven cases have been reported, the fewest in the past 16 years. Last year, Brazil reported 21 rust cases and the five-year average is 47 cases per year. The fewest number of ARF cases in recent history until now was 16 in the 2011/12 growing season. Improved scouting practices, quicker reactions to cases and preventative uses of fungicides have all led to fewer rust cases. In turn, Brazil has been able to elevate their soybean production without expanding acreage.

The greatest question on the La Nina, and in South America on a whole, is what we may see for double cropping. This is especially the case for corn as the Safrinha crop is where Brazil generates most of its exportable corn. This is also the crop cycle that suffered the greatest losses from last year’s La Nina. Trade has been expecting a sizable rebound this year and any indication otherwise will receive a market reaction. The question on available inputs to produce a large Safrinha crop is also being closely monitored.

The real unknown in the global corn market is if rationing will need to be done if production losses start to mount. Economists claim the United States will see corn values approach $7 per bushel if rationing is needed. This is especially the case if ethanol production remains elevated. Economists claim corn values may need to rise even higher if input costs do not recede by the spring planting season. While these may be correct, we also need to remember the United States is seeing heavy competition in the global market from Ukraine corn and feed wheat out of Australia, both of which may temper futures.

Demand for feed wheat in the global market is again on the rise and altering many corn use projections. This is mainly from China, which has bought low grade wheat from every supplier possible in recent weeks. The question this raises is if China needs feed grains or is going to blend this wheat with corn to stretch domestic inventories. The majority of this wheat is coming out of Australia where the crop was record sized this year but low in protein.

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