Prices for spot COMEX corn have rapidly declined over the past two weeks. As of March 3, 2023, prices were holding near $6.43/bushel, down from levels near $6.80/bushel in mid-February, marking the largest selloff since early-December and holding near the lower end of the post-invasion range excluding a temporary break below $6/bushel realized through July and August. The catalyst for near term price weakness was a bullish USDA production forecast, which indicated total corn planted area would increase 3% for 2023/2024 (June – July) resulting in an additional 34 Mt in total production. A worsening macroeconomic outlook, driven by expectations for a higher than initially expected Fed Funds rate also played a role in weighing on prices through February.
A similar trend took hold in wheat markets. Prices were trading at $7.01/bushel on March 2, down from levels north of $7.80/bushel two weeks earlier. The USDA production outlook for 2023/2024 was similarly positive, indicating total area planted would increase 8%, boosting total production by 51 Mt. Such a sizeable rise in output expectations was prompted by current supply tightness as the war in Ukraine continues to rage. Unsurprisingly, the USDA sees Ukrainian wheat supplies struggling to keep pace as access to capital and equipment alone will remain major barriers.
February price declines come as welcome news at a moment of elevated food inflation across a number of developed and developing nations. In the United States, January food CPI, which accounts for 13.5% of the consumption basket, was reported up 10% y/y. While this is a decline off peak levels north of 11% seen through August and September of last year, the pace of disinflation in annualized terms has been slow. The same argument is true of Europe, which has faced a number of supply issues amid the war in Ukraine and resulting price volatility as traditional trade flows out of the Black Sea face constantly high levels of uncertainty. Preliminary CPI figures for February indicated Euro Area annualized food inflation, including alcohol and tobacco, came in at 15%, finishing that the highest-level post-pandemic and marking a gain against January (14.1%). Even Japan is feeling the crunch, with food CPI finishing up 7.35% y/y (for January).
Whether the recent decline in prices can hold remains an open question. For now, the market seems to believe corn and wheat are a bit oversold. After bottoming in late-February, prices for corn (+2.14%) and wheat (+0.76%) have both rallied a bit off the lows from February 28. Further upward price movement is a possibility given the developments in real time trade flows.
The near-term recovery in prices through early-March tends to reflect supply tightness at present in the market, at least when monitoring real time physical flows, which are considerably underperforming against year earlier levels. Start with corn. In February, loadings finished at 8.16 Mt, a decline of roughly 4 Mt against average levels through 2021 and 2022. The decline was driven by weakness out of the United States (-3.3 Mt y/y), Ukraine (-2.3 Mt y/y), and Romania (-0.54 Mt y/y), albeit this was offset somewhat by a strong gain in shipments leaving Brazil (+1.39 Mt y/y).
The situation around Ukrainian corn is particularly notable. Following the implementation of the grain deal in August of last year, corn shipments initially surged in a bid to draw down excess inventory. In August and September alone, corn loadings totaled 2.3 Mt, outpacing total corn shipments made through Aug/Sept of the previous three years combined. Nonetheless, the arrival of harvest season has provided a look into just how much Ukrainian corn production has declined post-invasion. Between October 2022 and February 2023, corn exports managed just 8 Mt, falling well under year earlier levels (20.1 Mt).
The trade for seaborne wheat has fared a bit better in recent months, albeit February figures disappointed. The month managed a seaborne export total of just 11.6 Mt, considerably under year earlier levels (14.2 Mt), marking the lowest loading level since 2019. This was a reversal from January, which saw shipments finish at 14.7 Mt, up 0.26 Mt y/y. Argentina remains the biggest problem spot for now. February departures managed just 0.27 Mt, down from 2.58 Mt in February 2022 as drought continues to grip the country.
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