Global replenishment of inventories keeps grain prices falling – 05/15/2023 – Shuttle

World grain stocks are beginning to be replenished, which should continue to affect commodity prices. A change in this rhythm will only come with an increase in demand, which will be difficult to occur, or a crop failure due to weather problems.

The USDA (United States Department of Agriculture) projects a record grain harvest of 2.82 billion tons in the period 2023/24. As a result, the world surplus of food in the period of this crop analyzed would be 770 million tons. The volume is still lower than the 815 million in 2019/20, but already higher than the previous year.

Given this new scenario, the FAO (United Nations Food and Agriculture Organization) reported a 19.8% drop in average cereal prices in April, compared to the same period last year. Wheat, one of the leaders of recent highs, retreated to the lowest price level since July 2021.

Soybeans and corn have played an important role in this global recovery of inventories. Cereal production is expected to rise to 1.22 billion tons, up from 1.5 billion in the 2022/23 harvest. Brazil is one of the drivers of this increase, with a forecast record harvest of up to 130 million tons in 2022/23, according to the USDA.

Conab (National Supply Company) predicts smaller numbers. In the assessment of the state agency, the Brazilian harvest could reach 125.5 million tons, if the weather condition does not interfere until the final unfolding. Record Brazilian production gives the country good export potential and the possibility of once again assuming world leadership in the foreign market.

According to data from the USDA, Brazil should place 53 million tons of corn abroad, above the 45 million in the United States. For 2023/24, the USDA once again estimates world leadership in exports of the Brazilian product. China, which increases imports to 23 million tons, has canceled contracts with the North Americans and given preference to Brazilian cereal, due to price competitiveness.

Conab works with more modest numbers for Brazilian exports. Foreign sales, according to the agency, should add up to 48 million this harvest. The USDA and Conab trading year are based on different months.

This year, smaller crops in Argentina and Ukraine have helped Brazilian exports. In the next one, the Argentineans get bigger harvests again. There will be 54 million tons in 2023/24, well above the 37 million this year. In Ukraine, cereal production, still affected by the war, drops to 22 million tonnes, down from 27 million in 2022/23.

The US corn crop rises to 388 million tons, 11% more than what was produced in 2022/23. Planted area rises 4%, and productivity, which increases to 190 bags per hectare, will be 5% higher.

This prospect of a larger harvest in Brazil, coming mainly from the off-season, changed domestic corn prices. The current value of the bag, according to Cepea (Center for Advanced Studies in Applied Economics), is R$ 58.8. A year ago, the bag was at BRL 86.4, and, in May 2021, at BRL 102

The global picture of supply and demand for soy is also undergoing changes. The first USDA assessment of the 2023/24 oilseed crop indicates world production of 411 million tons. In the previous two, the offer was 365 million tons, on average.

As a result, ending stocks, which were 99 million in 2021/22, rise to 123 million in 2023/24. This USDA production assessment is still expected to be subject to a series of uncertainties. In the United States, the second largest producer in the world, crops depend a lot on the weather. In Brazil, the estimated expansion of the area by 1.9 million hectares may not materialize, according to Daniele Siqueira, from AgRural.

For the analyst, there is a drop in soybean prices, difficulties in obtaining credit and perspectives of lower profitability for the producer. On the other hand, if the increases in areas and production in Brazil and Argentina estimated by the USDA take place, there will be an excess supply of oilseeds.

According to the USDA, the Brazilian harvest, which was 155 million tons this year, could reach 163 million in 2023/24. In the same period, Argentina rose from 27 million to 48 million. The North American one, which was 116.4 million in 2022/23, has the potential to reach 123 million in this crop that is being sown.

In terms of demand, the USDA estimates an increase in Chinese imports this year to 98 million tonnes. In 2023/24, it will be 100 million tons. Siqueira says, however, that the USDA failed to agree with the Chinese, who forecast imports of 95.4 million for the 22/23 harvest (October 2022 to September 2023) and 94.2 million for the same period of 2023/ 24.