The world grain surplus that has weighed on crop prices for the past few years is getting smaller, with corn leading the way.
With recent weather problems in South America, the stocks numbers might shrink even more, although not yet enough to spark the kind of hot price rallies seen a few years ago.
After a drought in the growing season slashed soybean production in Argentina, it is now raining as farmers try to harvest the crop. Local analysts say the excess moisture could drop the crop a further five to 15 percent.
In Brazil, where near perfect weather during the soybean-growing season produced a record crop, it has now turned dry in southern areas, threatening the second corn crop, the one planted immediately after the soybean harvest.
Michael Cordonnier of Soybean and Corn Advisor, a much-quoted publication about South American crops, says the second corn crop will be disappointing. The degree of disappointment will depend on the rain this month.
These weather situations were at least partly reflected in the United States Department of Agriculture May 10 monthly supply and demand report.
It trimmed Argentina’s soybean crop to 39 million tonnes, down just one million from the previous month so further cuts could come if the wet harvest is as bad as local reports say.
Offsetting that cut was USDA’s increase in Brazil’s soybean crop, supporting the adage that big crops get bigger.
USDA now pegs the Brazil crop at 117 million tonnes, up from 115 million last month.
But in corn, the current dry weather in Brazil caused USDA to cut its corn production estimate to 87 million tonnes, down from 92 million last month. Argentina’s corn crop was pegged at 33 million tonnes, the same as last month.
Turning to stocks, the USDA gave support to my contention that world oversupply is being trimmed.
At the end of the 2016-17 crop year, corn stocks were estimated at 227.5 million tonnes and are expected to decline to 194.9 million at the end of the current year. The very early forecast for the end of the coming crop year is down to 159.2 million tonnes.
China’s changed agriculture policy accounts for more than half of the decline. Beijing is discouraging corn production and increasing the amount of corn used to make ethanol.
The USDA estimates China’s corn stocks at the end of 2016-17 were 100 million tonnes, declining to 79.6 million this year. They are forecast to fall to 60.5 million next year.
Stocks in the rest of the world fell to 115.3 million tonnes this year from 126.8 million tonnes in 2016-17, and are expected to decline further to 98.7 million at the end of 2018-19.
If the forecast for 2018-19 proves true, then global corn stocks-to-use would fall to around 15 percent, similar to the levels seen in 2009-11 period when corn prices were often significantly higher than now. However, stocks in the U.S., while shrinking, would still be not as tight as they were during the high price period.
The global stocks-tightening trend extends to soybeans, where the USDA sees year-end supply falling to 92.2 million tonnes this year and 86.7 million next year. from 96.4 million in 2016-17.
Global wheat stockpiles did not fall this year but might in the coming crop year.
USDA pegged 2016-17 wheat year-end stocks at 255.9 million tonnes. They increased to 270.5 million this year, almost entirely due to an increase in China, and are forecast to fall to 264.3 million at the end of 2018-19, mostly because of USDA’s expectation of smaller crops in the former Soviet Union.
The magnitude of the supply decline is not going to set markets on fire. The big cuts USDA sees for 2018-19 are highly speculative at this early date, but the direction is welcome and a sign that supply and demand could get into a better balance.