Early June saw United States corn futures break a major support at 710US cents a bushel after headlines surrounding the possibility of an export corridor being established in Ukraine. Access to bulk shipment of Ukrainian grain would be a game changer, hence the market reacts strongly irrespective of an agreement being reached.
More recent scepticism of this export corridor has driven US December corn prices higher with prices now back above that 710USc/bu support. Australian new season barley prices also reacted; however, it quickly fully recovered, now back at $A400 a tonne on an Outer Harbour basis. As a result, basis to corn quickly strengthened and reached as high as 44USc/bu.
Harvest of the second (Safrinha) corn crop has begun in Brazil in the earliest planted regions in Mato Grosso. While the crop was planted into decent soil moisture, conditions in central Brazil have been dry ever since. Additionally, the southern states are now being threatened by possible frost damage as temperatures skirt close to zero in the early hours of the morning. Private production forecasts range between 110-112 million tonnes compared to CONAB's 114.6mt and the USDA's 116mt.
As Brazil's harvest begins, China starts to purchase Brazilian corn. China typically relies on both Ukraine and the US for its corn imports and so has been forced to seek new markets due to rising prices. Brazilian corn is currently$US20-30 cheaper than US origin (CNF basis).
The Argentine corn harvest is about 34 per cent complete, 12.2pc behind the prior five-year average. Just 16pc of the crop is rated good/excellent and 36pc is currently in poor to dry soil moisture. With no rain on the forecast, these conditions are likely to deteriorate further.
Currently, South American corn is the cheapest feed grain available among the major exporters. On a FOB basis, Argentine and Brazilian corn is about $US315-320/t compared to the US Gulf at $US340/t and Australian barley at $US385/t. South American corn is competitively priced into our Asian markets and has already begun to displace demand for Australian feed wheat.
The European Union, the largest producer of barley in the world, has been experiencing dry weather since entering spring. Multiple regions across Europe are experiencing rain deficits and high temperatures. Winter and spring crop conditions in France, as reported by FranceAgriMer, have continued to deteriorate. EU Agridata currently has 2022/23 barley production pegged at 52.7mt, up marginally from last year due to an increase in area. European weather will need to be closely monitored as continuing dry conditions would result in additional yield loss.
We are seeing high malt premiums in the outer harbour zone for new season barley, between $40-60 depending on the variety. Malt premiums typically peak around harvest and then decline through Jan/Feb. Seeing spreads this early in the year is uncommon and shows that the local market is keen to accumulate early to avoid shorts. Export demand for Australian malt will likely be as sporadic since export diversification has been unable to replace previous Chinese demand.
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