May 2023 corn futures further firmed rather solid support near the $6.75 area, while overhead resistance is near the $6.85 price point. But is it going to be this kind of dull range trading for several more upcoming trading sessions? It doesn’t look like that.

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Recently, the International Grains Council (IGC) lowered its forecast for aggregate global grains production to 2.248 billion tons, down 8 million tons from its earlier estimate in January, on the back of lower corn production prospects in the U.S. and Argentina – a forecast match, so corn here has been the one in the sharpest focus.

The report, released recently in February, forecasted that global corn production in 2022-23 will drop by 67 million tons YoY. The IGC in its February report cut its forecast for total grains consumption by 9 million tons but increased the carryover total by 2 million tons to 579 million, which is still the lowest level in 8 years.

Given uncertainty about agricultural activity in controlled territories, figures for Ukraine are highly notional, but with area tentatively seen sharply lower YoY. There is still uncertainty over the future of the Ukraine export corridor deal, which expires March 19. In the same tone, the USDA estimated total corn production in 2022 at 13.730 billion bushels, down 200 million bushels, or 1.4%, from the most recent November estimate and down 1.344 billion bushels, or 9%, from the 2021 estimate of 15.074 billion bushels. The January estimate fell below the full range of agricultural traders’ expectations and was the lowest estimate since 2012.

Corn yields, however, rose 0.6% to 173.3 bushels per acre, the upper end of expectations. Despite the increase, the decrease in harvested area more than compensated for the small increase in average yield. While the number of acres planted to corn in 2022 earlier was trimmed to 88.579 million acres, down almost 5 million acres from 93.252 million acres planted in 2021, only 89% of the 2022 planted corn acres were harvested while 92% of the planted acres were harvested in 2021.

Drought in parts of the U.S.’s Western Corn Belt and Great Plains has lead to increased abandoned (unharvested) area as early as 2022. In fact, corn farmers harvested 1.455 billion bushels in Nebraska (down 22% from 2021 and 18% from the 5-year average) and 511 million in Kansas (down 32% from 2021 and 30% from the 5-year average), and 119 million bushels in Colorado (down 20% from 2021 and down 23% from the 5-year average). All three states saw sharp declines in yields and crop area, the USDA said.

Back in Jan. 12 World Agricultural Supply and Demand Estimates (WASDE), the USDA reduced its forecast for the carryover of corn towards Sept. 1, 2023, to 1.242 billion bushels, down 15 million bushels from the December outlook and down a whopping 135 million bushels from 1.377 billion bushels in 2022. The USDA also reduced its forecast for U.S. domestic use, however by a less than conspicuous 35 million bushels to 11.990 million bushels. Feed and residual usage was lowered 25 million bushels to 5.275 billion bushels, and exports were reduced to 1.925 billion bushels, down 150 million bushels, or 7%, from the December projection of 2.075 million bushels.   

Another important corn crop area is South America. Brazil is eyeing second crop corn. The second corn crop accounts for 70% of the country’s total corn output. This is the corn that is then harvested and exported around the world in late July/early August. (recently, China just signed a deal with Brazil to ship corn to China to offset the decline in Ukrainian corn supplies.)

Currently, due to heavy rains, sowing of the second crop corn is progressing slowly. The slower the culture grows, the more threatened it will be from bad weather during pollination.

Summary:

Based on recent joint production outlook downgrades highlighted by two prominent agencies, USDA (WASDE) and the International Grains Council (IGC), investors should single out corn futures among the whole grain futures group as the one having the most interesting story unraveling now.

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