Column: Argentine crop pegs take unusual dive; U.S. corn demand remains at risk

NAPERVILLE, Ill., Feb 8 (Reuters) - The U.S. Department of Agriculture’s February supply and demand report is often uneventful, and that was mostly true this time around even with large cuts to Argentina’s drought-stricken harvests.

But despite most key report numbers coming in near expectations, there may be more pressure on U.S. corn demand than meets the eye following increased export competition in Wednesday’s update.

USDA’s views of Argentina’s corn and soybean crops landed below trade guesses by more than 1 million tonnes each. Analysts typically see USDA as being more conservative with harvest cuts versus other agencies.

The new soy production estimate of 41 million tonnes is down an unprecedented 20% from USDA’s initial peg and down 10% from January. Monthly reductions of this magnitude are extremely rare but were observed in 2009 and 2018, two other severe drought years for Argentina.

In both those years, the final soy crops were a third smaller than USDA originally predicted. Applying those losses to 2023 would yield 34 million tonnes, still much below the current forecast.

But that number is already in play. Argentina’s Rosario grains exchange on Wednesday cut the soy crop to 34.5 million tonnes from 37 million previously, warning of more heat and dryness on tap for the next two weeks.

Rosario also reduced its corn crop outlook to 42.5 million tonnes from 45 million, and USDA made a 10% cut to 47 million from 52 million. The U.S. agency last month had Argentine corn yield slightly beating the five-year average, but now it is seen falling 6%.

Argentina’s corn production is significantly more robust than in 2009 so that year may not be a good comparison, but trends in the 2018 crop estimates suggest this year’s harvest could drop into the low 40 million range.

In the past six years, USDA’s initial estimates of Argentine corn production versus finals were split: three were too high and three too low. But this year will mark the seventh consecutive season where Argentine soybean output falls below original ideas.

CORN EXPORTS

USDA left Brazil’s corn and soybean crops unchanged, though Brazilian agency Conab on Wednesday trimmed the second corn harvest based on late planting in top state Mato Grosso.

U.S. corn ending stocks increased as expected in USDA’s update, but it was on a reduction in corn used for ethanol production and not exports, which could have been justified given the slow pace of shipments and sales.

That opens the door for another U.S. corn demand reduction soon, especially if exporters’ luck does not reverse immediately. USDA’s country-level assumptions for grain trade are not public, but the latest movement among top market players seems to increasingly squeeze U.S. corn out of the mix.

USDA added 3 million tonnes to Brazil’s 2022-23 corn exports, which increased to 50 million, despite no change to production. China has been buying Brazilian corn for over two months now, in January becoming Brazil’s top corn customer.

U.S. corn exporters’ biggest problem has been China’s glaring absence from its market this year versus the last two, and both expanding capacity in rival exporters and softer Chinese demand are unhelpful. Both USDA and China’s ministry on Wednesday left 2022-23 Chinese corn imports unchanged at 18 million tonnes, a three-year low.

Ukraine’s corn exports also increased 2 million tonnes to 22.5 million, well above the grim sub-10 million ideas from mid-last year. China is a mainstay buyer of Ukrainian corn, though this month’s export increase could be mostly allocated to Europe as its import outlook rose.

USDA took Argentina’s corn exports down with the smaller crop, but it does not ship corn to China.

Karen Braun is a market analyst for Reuters. Views expressed above are her own.

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