Demand for corn shifts towards cheaper South American supplies

During this recent downtrend, United States corn prices fell below price levels from when the Russo-Ukrainian war began. US corn has been under heavy pressure from recession fears sparking a risk-off mood as well as managed money unwinding their positions in ag commodities which they had been using to hedge against inflation.

Demand for corn has begun to shift towards cheaper South American supplies as harvest of Argentine corn and the second Brazilian crop progresses. Due to delayed planting, a greater proportion of US corn will begin pollinating in mid-late July when northern hemisphere temperatures are typically their highest. Pollination is negatively impacted when temperatures exceed 35 degrees. The current forecast for the Central Plains and Midwest shows maximum temperatures over the next two weeks ranging between 32-42 degrees. If this pattern does not change, heat stress will begin to harm US corn crop health and lower expected yields.

StatsCan cut Canadian 2022 planted area of barley to 2.85 million hectares, down 0.5m ha from last year about a 15 per cent drop. This was well below most trade estimates of 3.11m ha and some private analysts suspect the StatsCan survey may have missed some last minute shifts to barley; if so, we may see an upwards revision in a later update.

Canadian barley prices have been grinding lower as crop conditions remain favourable and we begin to move past the most critical stages of crop development. At this stage, there is no indication yields will be below average. Using average yields and excluding 21/22 as an outlier, Canada's final production could reach 9.6 million tonnes, up 2.7mt from last year, a potential 39pc increase.

European barley prices have been following wheat in forming a seasonal low as the winter crop harvest progresses. The arrival of fresh supplies will continue to pressure feed markets despite 22/23 EU Agridata cutting barley production to 52.63mt, down from 53.9mt due to dry conditions across Europe.

Concerns have also been mounting for European row crops. With little to no rain on the forecast and high temperatures, Europe will likely see rapid soil moisture loss. France was lucky to see decent precipitation in June, but it remains to be seen if it will be enough to keep yields stable.

The EU is a net importer of corn, typically relying on Ukraine. If Europe runs into issues with corn production, they will likely shift to a greater reliance on Brazilian exports, or we may see more barley be diverted to domestic use.

Australian 22/23 barley prices have fallen to $366 a tonne from a high of $405/t in SA. BAR1/Corn basis has done a lot of work with local cash prices weathering the fall relatively well in comparison. During the downtrend, basis strengthened reaching a peak at 60.81USc/bu.