Argentina’s corn harvest as of late last week reached 29% completed, up slightly from the same week a year ago and close to the longer term average of 31%. A slowdown in corn harvest is imminent as producers switch to gathering beans in late May and early June. Argentine farmers then resume corn harvest in earnest thereafter, though it’s rather common for the crop not to be fully gathered until the first week of August. ARC notes that Argentina uses just 30% of its crop domestically, and so much of the remaining harvest will be pushed onto the world market. Weather was excellent during pollination, there are no major threats to fieldwork into the end of May, and Argentina cash basis has responded appropriately – by falling to near record-low levels for mid/late summer arrival.
In general, the world cash corn market appears to be one still searching for demand. Spot US basis at the Gulf is at a multi-year low $.40/Bu over CBOT futures, and still US corn will struggle to compete against cheaper South American origin. Argentina fob basis for August shipment (post-harvest) rests at just $.10/Bu over futures. Brazilian basis for Aug-Sep is quoted at $.25-.27 over, and with one more rain event likely in Brazil next week, forecasts for record large South American corn production are valid. This is likely futures have struggled on rallies, despite what appears to be a rather adverse spring across the C and E Midwest and amid falling high protein US wheat supplies. Weak S American corn cash prices already are slowing future US corn demand.
However, our work suggests that a bottom lies close in the offing in world cash corn prices, and may happen sooner rather than later.
The seasonal trend in Argentina fob corn basis is displayed below. The US will no doubt lose world market share from July into Sep/Oct, but thereafter whether the US continues to lose market share is less certain. The trend in forward South American offers has so far followed the seasonality of years in which production is not threatened by weather. Argentine corn for August delivery rests at $150/MT, vs. seasonal lows last year at $155. The cash market, perhaps more so than the futures market, has digested record global corn stocks and this season’s massive rebound in South America’s surplus. ARC doubts world cash corn prices will be able to fall below $145/MT unless record corn yield is confirmed in the US, and we maintain that downside risk below $3.50, basis Dec, requires favorable Jul-Aug weather. In the meantime, expect continued choppy trading.