ANALYSIS: Is the corn market about to feel a soybean trade war hangover?
A trade spat between China and the US that thrust the trade of soybeans into the political limelight may yet have an impact on the global corn market, as exporters struggling for storage space sell more corn into an oversupplied arena.
US exporters have posted impressive weekly export figures in recent weeks, which traders say is more of a function of supply than demand, and which will soon test the strength of demand for corn globally.
The increase in supply comes as some major exporting nations chow through substantial harvests at a time when key buyers have already stocked up.
A key metric is the spread between CIF barge prices delivered into the Gulf and FOB cargoes loading out of the same location, with the tighter the spread the greater the pressure to sell.
The Gulf between
For FOB loading cargoes, the river barge network is the key supply route, making the relationship between CIF barges and FOB cargoes fundamental to the US’s price competitiveness.
Typically, the twin markets are separated by the elevation cost – the cost of taking barge volumes of around 1,500 mt into storage to build the FOB cargoes of around 60,000 mt.
That’s usually around 10-12 cents/bu, although that spread has been narrowing.
Offers for FOB corn cargoes are at premiums over the December CBOT contract of around 46 cents for October, 56 cents for November and at around 60 cents for December loading cargoes.
That compares with CIF barges bid around 38 cents for October, 46 cents for November and 50 cents for December – squeezing the elevation margin to under 10 cents for the rest of the year.
“It’s normal for elevations to be reduced when there is high volume, but I think this year is definitely unusual,” one market source said, with international trade relations playing a key role as the Chinese embargo on US soybeans means storage is already choked with beans.
“This is obviously more a function of trade policy and not global demand,” the source said.
US export domination?
The low futures price and competitive basis values have fired major export volumes through the start of the new marketing year, consistently surpassing analysts’ expectations with the Gulf in the vanguard of the export wave.
Weekly US grains inspected for export data shows the country is already over a million tonnes ahead of last year’s export performance, with the new marketing year barely a month old.
US Gulf exports have dominated that programme so far, as the main export hub for 56% of total US corn exports – some 3.2 million mt since the beginning of the 2018/19 marketing year, 50% higher than the 2.1 million mt in the equivalent period of 2017/18.
But with the US reliant on a handful of major customers, there are question marks over how long they can continue to soak up a harvest that could be as big as 14.8 billion bushels (376 million mt).
“I just wonder how much export demand was front-loaded,” Advance Trading’s Kelly Herrick told Agricensus, with key customers like Mexico picking up 623,000 mt in export sales in the week ending September 20, taking 342,700 mt in exports that week.
South Korea – another major US customer – had largely completed its 2018 buying by late July, leaving it to only pick up sporadic corn cargoes for early 2019 delivery in recent weeks.
“Ukraine’s crop should keep some of those smaller demand spots supplied, so there’s no surprise demand for US corn there… and with tough ethanol margins, have we already posted the biggest demand?”
Prices in competing origins have come under sustained pressure as the size of corn supply has mounted and, while that move is seasonally expected, both the US and Ukraine are looking at big, healthy and early crops.
Ukraine's FOB corn prices have slumped 14.2% since hitting $194.50/mt on August 15, according to Agricensus data, while Brazil and Argentina have seen their export pace slow dramatically as domestic issues and low prices see farmers hold on to their supply.