Did USDA's February Report Hint at Demand Destruction in Corn?

USDA's February WASDE report typically isn’t a big market mover, but this year heading into the report’s release corn traded 6 cents higher, hitting a new high. That momentum quickly faded as traders seemed disappointed by conservative adjustments to its corn import forecast for China.

“You look at corn ending stocks domestically, down on increased corn exports, and we still saw futures markets fall,” says University of Missouri economist Ben Brown. “That tells us that even though the movement was in the right direction–or at least match what most people thought–it didn't go as far as what many analysts were expecting.”

In its February 2021 report, USDA increased corn exports to China by 50 million bushels, an adjustment some analysts didn’t thought wasn’t aggressive enough.

“For me, though, I’m maybe not as surprised by this,” says Brown. “Certainly, I think everybody was looking at those record purchases we saw by the Chinese over a week, right there around the third week of January, when they bought 230 million bushels of corn from the United States, and saying that we should see large revisions in U.S. corn exports as a result of that. I like to remind folks, at least right now that USDA cut corn exports 100 million bushels in January's report, and so the 50 million did reflect those Chinese purchases.”

While USDA didn’t add all of the 100 million bushels back into the forecast on Tuesday, Brown says the main reason may be concerns over higher corn prices and the impact on overall demand.

“I think what we also saw is USDA tilt their hand that they're expecting non USDA purchases of grain from other buyers to either disappear on higher prices or start looking other elsewhere for corn,” adds Brown. “My expectation is certainly a little bit of both.”

Brown says the demand picture is seeing pullbacks from both South Korea and Japan, but Brown is concerned other countries who have signaled they’d buy from the U.S. may be forced to look elsewhere for corn. He acknowledges with higher prices, there aren’t a lot of other countries to find supply at a cheaper prices, but the possibility is there. 

Overall, Brown called USDA’s revisions to corn “appropriate,” but says the key now is shipments.

“Certainly, we've seen sales of corn really stand out is as needing revision upward, but those daily and weekly export inspections, or actual shipments, have really continued to lag. We remain below the seasonal pace needed to hit that, and we had a strong week last week was a strong export week.”

Brown says he personally thinks the corn purchases will translate into actual shipments to China.


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