By RICHARD BROCK, BROCK & ASSOCIATES
An old saying in the grain industry is that major bull markets turn into major bear markets. That has almost always worked in the past. This year, however, it may take a while before the bull turns into a bear. The world is in an entirely different situation.
The US Department of Agriculture's May Supply & Demand estimates indicated some major shifts taking place around the world. For corn, notice in the table below that the USDA cut estimated corn production in Ukraine from 42.1 mmt last year to 19.5 mmt this year as a result of the war. Last year, Ukraine accounted for 13% of the world’s corn exports. They also increased Brazil’s corn production estimate from 116 mmt in 2021/22 (this year’s crop) to 126 mmt for 2022/23 (next year’s crop). USDA’s 2022/23 production estimates for China were left essentially unchanged 2021/22, and USDA estimated that U.S. corn production is going to be down 655 million bushels from last year. Overall, world corn production for the upcoming 2022/23 marketing year is expected to be down 34.9 mmt or almost 3%.
Of even more significance is the forecast of corn exports from Ukraine. The USDA now expects exports out of Ukraine to drop to 9 mmt in the 22/23 marketing year versus this past year’s 23.0 mmt. And even at 9 million, that’s assuming the war stops soon. The production estimates from Ukraine mentioned earlier also would be making the same assumption. The truth of the matter is, no one knows.
Wheat much more concerning
The changes in world wheat production estimates are also substantial. The USDA is forecasting an increase in Russia production from 75.2 mmt last year to 80 mmt this year. U.S. production is forecast to increase from 44.8 mmt (1.646 billion bushels) last year to 47.1 mmt (1.729 billion bushels) this year. That’s going to be very difficult to accomplish with the drought in the western part of United States.
The big increase in production this year is expected to come from Canada, with a production estimate going from 21.7 to 33.0 mmt. That’s possible. Ukraine wheat production is expected to plunge from 33 mmt last year, down to 21.5 this year. The impact on Ukrainian wheat exports is also significant with the expectation of a 50% drop from 19 mmt this marketing year to 10 mmt in 2022/23. Finally, Australia production is also expected from last year’s record 36.3 mmt crop down to 30 mmt this year.
All of this is occurring when the U.S. corn crop and soybean crop is getting planted late. There will also be substantial prevent plant acreage in North Dakota and Western Minnesota. This is going to prove to be a very wild summer for price volatility. While it is difficult to imagine corn, soybean and wheat prices going down with substantial bullish fundamentals, one should also recognize that many of these bullish fundamentals have been already been discounted into current price levels. Fasten your seatbelts.