Corn futures have nudged lower in the last week but remain at relatively high levels as expected on the back of smaller harvests from the US and Argentina. Brazil’s second harvest is expected to be larger than previously forecast but this may still not be enough to alleviate supply issues in Europe.
The US corn crop has experienced a double whammy this year with wet cold weather affecting sawing in late spring and the heat impacting the final stretch of growth ahead of the harvest season. By the end of May and in early June it had already became clear that US corn production would be significantly lower this year despite farmers’ plans to grow more to make up for the shortage in Europe.In some parts of the US, notably North Dakota and Minnesota, farmers left some acreage fallow because of unfavourable weather conditions and instead opted for what is called prevent planting payments. These are insurance payments paid out when extreme weather or natural disasters such as floods, droughts and fires prevent planting.
Now as the farms in the southern part of the US approach the start of the harvest season the weather is yet again working against the farmers. In its weekly Crop Progress report the USDA reported that corn and soybean conditions fell again last week because of the hot, dry weather in parts of the country.
The report said that 64% of the corn was in good to excellent condition, down from 67% the previous week, and lower than earlier in June. Weather conditions over the coming two to three months will be crucial as the southern states start harvesting in late July while the northern regions begin the process at some point in September.
Futures traders watching the weather in the Midwest
The weather forecasters expect more dry weather for the US Midwest through the middle of July, a critical period for corn development.
The expected lower US corn crop later will add to the issues with Argentina’s and European crop. Argentina, the world’s third largest exporter of corn, faced weather issues during its harvest season this spring and a much lower level of the actual harvested corn was in decent condition. The Buenos Aires Grain Exchange said that by the time a third of the country’s corn was harvested this spring only just 16% of it was rated as good or excellent whereas last year this percentage was closer to 59%. The country’s first corn crop endured a lack of rains, especially in January.
However, the second harvest in South America may make up for some of the shortfall earlier in the year. Brazil is now expecting to harvest a larger second corn crop this year as timely rainfall has lessened a severe drought in the country. Brazil’s second harvest makes up nearly 80% of the country’s total corn production which is expected to be in the region of 115 million tonnes.
CBOT corn futures are trading at 601 cents at the CME with corn volatility moderately higher. On European exchanges, Matif August corn is trading at EUR310/t, up nearly 4%.
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