Inside the Market

Fall harvest saw some windy days and outbreaks of wildfires in the Western Plains, but overall, dry conditions helped harvest finish quicker than usual in 2022. USDA estimated a 13.93 billion bushel (bb) corn crop in November, and given this year's lack of harvest obstacles, the estimate shouldn't change much when USDA reassesses in January.

While the production side of corn's ledger is now fairly well understood, we can't yet say the same for the demand side of 2022-23. Brazil produced a record crop earlier this summer, and supplies are still available enough for Brazil's December FOB (free on board) prices to be 12% below comparable prices in the U.S. By late October, U.S. corn export commitments totaled only 580 million bushels (mb), less than half of last year's total at this time.

Even if the U.S. had more corn sales, it will be difficult to ship corn until February 2023. Drought has reduced water levels on the lower Mississippi River, and barge traffic restrictions are in effect. Soybean shipments get priority and will likely remain active into January before corn gets its chance. The seasonal forecast remains mostly dry, so river traffic will probably stay restricted until spring rains arrive.

In the larger picture, the outlook for U.S. corn demand looks more bullish in 2023. Brazil's exports should become less of a factor by late January. USDA estimates Ukraine will export 610 mb or 15.5 million metric tons (mmt) in 2022-23, down 43% from a year ago. Even that smaller amount is far from certain as Ukraine remains a dangerous place. Russia's relentless attacks, changing moods on Ukraine's grain corridor and willingness to make nuclear threats keeps corn prices potentially volatile.

China's corn demand also has potential for surprise. It was just two seasons ago that China surprised the world and bought 846 mb of corn from the U.S. shortly after the initial pandemic. In 2022-23, USDA is estimating China's corn production will fall short of demand by 827 mb or 21 mmt. So far, China has only bought 137 mb from the U.S., and it is difficult to know how many more purchases may be on the way. Spot corn prices in China in early November are trading at the U.S. equivalent of over $10 a bushel, an indication more imports are needed.

With USDA estimating U.S. ending corn stocks at a 10-year low of 1.182 bb in 2022-23 and Brazil's larger corn crop not due until July 2023, this could be a long winter for end users needing to buy corn. Cash corn bids are already above $7 in the Southwestern Plains and above $8 around the Texas Panhandle. Demand from ethanol plants sagged from August to October but is picking up again as energy supplies remain tight and ethanol is needed to stretch fuel supplies.

Surprises are always possible, but for corn's third consecutive spring, this looks like another high-price, tight-supply situation in the making.

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