Black Sea to offer less corn for the world in 2023/24 - Atria Brokers for Miller Magazine

While world corn prices were under pressure from massive Brazilian and US corn crops, Ukrainian prices at the finish of the 2022/23 season found some support in July and August 2023. The reason is that Ukraine coped with its huge export targets and not much stocks are left low. 

 

Watching the world corn supply 2023/24, we see that figures could be well above the previous year. But this could be a bit fake feeling. This increase is partially connected with Brazilian and Argentinean crops, which are not even planted now. As well, the second biggest part of the supply hike is hidden in the US, where yield development is precisely examined due to the drought. 

When we watch the corn balance exactly for the Black Sea region in 2023/24, we could see that supply is going to drop by about 3 MMT y/y. This is mostly connected with lowered Ukrainian corn stocks. Ukraine will not have such huge carry-over stocks in 2023/24 MY, as in the year before. In 2022/23 MY, large stocks allowed Ukraine to increase its corn export despite all problems with the grain corridor. Thus, the USDA expects the carry-overs to drop to 1.4 MMT in 2023/24 MY vs. almost 7 MMT LY.

 

Thus, the bearish factor for prices of Ukrainian origin could be mostly the absence of the corridor and small export window. Meanwhile, the crop 2023/24 is in general some 7-10 MMT below the pre-war levels, although a bit higher than in 2022 year. Indeed, the USDA has recently improved its production prospects for Ukraine on increases to both area and yield, boosting the crop forecast by 2.5 MMT to 27.5 MMT for 2023/24 MY. That will make the harvest 2% bigger than in 2022/23 MY. But if we compare it to the pre-war level, the production will be lower by 35%. Taking into account the fact that after 17 July Russia did not extend the Grain Corridor, in spite of crop forecast upgrade, the August WASDE report left the Ukrainian corn export forecast at only 19.5 MMT, - 30% y/y. In Oct-Jun 2022/23, Ukraine shipped 15.6 MMT of corn via the grain corridor, or 59% of the total shipments over this period. Export via all other routes totaled 10.9 MMT. But Russia repeatedly attacks the shallow ports of the Danube, trying to push Ukraine out of the grain market completely. The only relatively safe route for Ukrainian grain – by land – has limited capacity.  
Recent news about Ukraine announcing a “humanitarian corridor” to let cargo ships trapped in its ports since the outbreak of war in February 2022 sailed into the Black Sea is a factor to watch. The first container vessel passed by this route on 16 August. But for now, there is no information about the possible transportation of grain via this new corridor. Frequent Russia attacks on Ukrainian ports, as well as the statement of the Russian Defence Ministry that it would deem all ships traveling to Ukrainian ports to be potential carriers of military cargo, generates serious risks for shipowners. On 14 August, Russian militaries stopped vessel SUKRU OKAN that was moving to Izmail port. As they said, they had checked the vessel for “prohibited cargo”, after that the ship continued its voyage. So, it is questionable how many shipowners will be ready to provide their ships for this route.

As for other Black Sea countries, in Russia, corn crop will decrease by 8% in 2023/24 MY to 14.6 MMT, according to the USDA. With slightly smaller carry-overs, Russian export potential is about to decline by 22% to 4.2 MMT in the new season. 

Romania is going to harvest much better crop compared to drought-hit harvest in 2022, however, it still will be 20% smaller than the five-year average. The European Commission sees Romanian harvest at 10.9 MMT in 2023/24 MY. Serbia and Bulgaria are on course to harvest good corn crops in 2023/24 MY at 7 MMT (+40% y/y) and 2.7-2.9 MMT (+8%+17% y/y), but they are minor corn exporters in the Black Sea region.

Brazil is on track to harvest its biggest corn crop ever. The USDA in its August report raised the production prospects by 2 MMT to 135 MMT for 2022/23 MY, up 16% y/y. The harvesting campaign of the second crop corn is progressing under favorable conditions with 77% collected as of 21 August, AgRural said. The yield is reported as very good. The export of Brazilian corn is expected to reach 56 MMT in 2022/23 MY, up 16% y/y. With such potential, Brazil will surpass the USA as the biggest world corn exporter in 2022/23 MY. 

The second price bear for the corn market is sitting in the US, expecting its crop 2023/24 to be the second-largest on record at 383.8 MMT after 2016/17 MY and +10% y/y. Herewith, on 25 August, Pro Farmer published results of their crop tour at 172.0 bu/acre for US corn yield 2023/24, below USDA’s 175.1 (10.99 MT/HA) and the year-ago yield of 173.3 (10.88 MT/HA). In case we implement Pro Farmer’s yield to the acreage, we receive about 377 MMT crop. It potentially could mean a 6 MMT cut for the September WASDE report. And it is already after 5.3 MMT cut to 383.8 MMT in August WASDE. 

Herewith, AgriCensus analysts emphasized, that last year’s crop-tour figure was much worse at 168.1 bpa. As well, as per WASDE, the harvested area 2023/24 is seen at 34.9 MLN HA, up 9% y/y. Higher by 6% carry-over stocks at 37 MMT are adding to price pressure. Demand for US corn exports is pressured by massive harvest in Brazil. The USDA cut 2023/24 MY shipments by 1.3 MMT to 52.1 MMT. However, the export is expected to be up 26% from the poor performance of 2022/23 MY expected at 41.3 MMT (-34% from 2021/22 MY).  
The next two weeks will bring sizably smaller-than-average precipitations to the key US corn-producing states that may further hurt the crop.  

The EU will need to maintain a high import pace in the new season. Its own crop will recover after a drought-hit harvest in 2022, but the weather has been far from perfect in 2023. In August report, the USDA cut their crop forecast by 3.7 MMT to 59.7 MMT. It is up 14% y/y, but still sizably lower than the five-year average. The USDA sees the EU corn import in 2023/24 MT at 24 MMT, down 2% y/y, but still up 22% compared to pre-drought 2021/22 MY. 

 

The weather for the last half of August continued the severe lack of precipitations across Italy, the Balkan countries and the Iberian Peninsula. Large parts of France and Poland to face limited rains as well. Improvement of weather conditions in the first decade of September could fail to bring any improvement, as key development stages were already completed. 
Spanish buyers are expected to show strong demand, as the country’s crop to fall for the second consecutive year to 3.1 MMT which will be down 23% compared to the five-year average according to the European Commission. In Italy, corn crop will grow by 9% y/y to 5.1 MMT that still will be 17% less than the average. In Portugal, crop will be 13% below average which together with insufficient own production will support import demand. In turn, in Germany, the harvest will be 3% higher than the average at almost 4 MMT that may cut the import. 

In Oct-Jul 2022/23, shipments of Ukrainian corn to the EU increased by 50% y/y to 15.1 MMT. Such a huge increase was partially based on transit of Ukrainian corn, primarily via the Romanian port of Constanta, but the real demand was strong, as the EU had to compensate for the poor 2022 crop. Also, the poor functioning of the grain corridor and its termination in July made it challenging to ship Ukrainian corn to remote destinations that resulted in bigger supply of Ukrainian origin for close European buyers. 

 

However, complaints from European farmers, who discovered a way to get huge subsidies, led to the imposition of a ban on the import of Ukrainian corn, wheat, sunflower seed and rapeseed to five neighboring countries until 15 September 2023. Now, these countries want to prolong the ban at least until the end of 2023, and Poland has already said that it will not open its doors to Ukrainian grain in September.  

As Europe will strongly need imported corn in 2022/23 MY, Ukraine should have a good demand from European buyers. Also, the absence of any alternative to ship large volumes to remote destinations will make Ukrainian sellers to offer more corn to close markets. However, the obstacles will remain. Firstly, the ban on the import of Ukrainian corn may be prolonged. Secondly, there is no understanding of the future of the grain corridor. And finally, the competition from Brazilian origin can be even tougher with its coming huge supply. In Oct-Jul 2022/23, the EU imported 3.6 MMT of Brazilian origin, up 50% y/y. 

Amid current attractive prices, all North African countries are expected to increase corn imports in 2023/24 MY. Particularly, Egypt can raise purchases by 50% to 7.5 MMT that is positive news for Ukraine. In Oct-Jul 2022/23, Ukraine increased corn export to Egypt by 36% to 1.9 MMT. Larger shipment was based on the ability to ship corn to Egypt not only via the grain corridor but also by small vessels via the Danube ports. At the same time, the supply of South American corn to Egypt decreased. Import from Brazil dropped by 53% y/y to 1.6 MMT in Oct-Jul 2022/23 MY. Shipments of Argentinian corn fell to 0.8 MMT in Oct-Jun 2022/23 MY, down 50% y/y.

 

There was also higher export to Tunisia that reached 432 KMT in Oct-Jul 2022/23, up 21% y/y. In turn, there were no shipments of Ukrainian corn to Algeria and Morocco. These countries were small buyers of Ukrainian corn in Oct-Jul 2021/22 MY with 131 KMT and 98 KMT bought correspondingly. In 2022/23 MY, they cover their demand mainly with South American corn. 

Turkey to decrease corn import by 36% to 1.8 MMT in 2023/24 MY. The country is on track to harvest a record crop in 2023/24 MY that is seen at 8.2 MMT, up 21% y/y. The bigger harvest will be based on a larger area, while the yield is expected to decrease. 

This prospect is upsetting for Ukraine, as Turkey is one of the key buyers of Ukrainian corn. Under the current export condition, the demand from close-located buyers is essential for Ukraine. Also, on the Turkish market, Ukrainians is facing strong competition from Russian origin offered at cheaper prices. In Oct-Jul 2022/23 MY, Ukraine halved corn export to Turkey to 0.7 MMT vs. 1.4 MMT over the same span in the previous season. At the same time, shipments of Russian origin grew by 75% y/y to 2.1 MMT in Oct-Jun 2022/23 MY.

With lower prices, world corn imports may reach a record high in 2023/24 MY. August WASDE put it at 187.1 MMT, up 8% y/y. China solely will account for 38% of the world’s import surplus. 

 

The current USDA’s forecast of corn import to China is at 23 MMT, up 28% y/y. Smaller corn carry-over stocks can be one of the reasons for higher imports. The USDA pegged it at 205.3 MMT, down 2% y/y. However, Chinese stocks are a kind of a mystery.

 

China will show stronger demand despite the fact that it is going to harvest another bumper corn crop in 2023/24 MY. In its August report, the USDA cut its forecast of corn production in China by 3 MMT to 277 MMT, as excessive wetness in key producing provinces in Northeast China and on the North China Plain reduces yield prospects. However, the updated forecast is only 0.2 MMT lower than the record achieved in 2022/23 MY. At the same time, the Chinese AgMin maintained its forecast unchanged at 282.3 MMT despite the recent flooding in the crops’ key growing areas. 

 

As for now, Ukraine does not have a chance to compete for this growing Chinese demand, as Ukraine is not able to supply any sizable volumes to China without deep-sea ports. At the same time, we see flows of Brazilian origin to China, after the South American country was approved for corn supplies. Taking into account the huge crop that Brazil will harvest this year, its export potential will increase by about 8 MMT, based on USDA’s forecast. Total export of Ukrainian corn to China amounted to 6 MMT in 2021/22 MY, and it is at 5.5 MMT in Oct-Jul 2022/23 MY. Therefore, Brazil will be able to compensate for the absence of Ukrainian corn on the Chinese market. 

 

In 2022/23 MY, supplies of Ukrainian corn to China managed to stay at a high level with 5.5 MMT shipped in Oct-Jul, down 7% from 5.9 MMT exported in Oct-Jul 2021/22 MY. As Russia maintains good relations with China, there were evidences that the vessels that were heading to China from the Ukrainian deep-sea port via the grain corridor had some privileges while passing through the inspections. For example, sometimes these vessels were put at the beginning of the line of ships waiting for inspection. In general, Russian-Chinese friendship and strong Chinese dependence on Ukrainian corn probably was one of the reasons why Russia stayed in the grain deal for so long.

 

At the same time, after China has opened its doors to Brazilian corn, the shipments from South American country are quite massive which is hurting the demand from Chinese buyers not only for Ukrainian, but for US origin as well. The first batch of Brazilian corn was shipped to China in November 2022. In Nov-Jul 2022/23 MY, China imported 3.4 MMT of Brazilian origin. Import from the USA dropped by 42% y/y to 6.7 MMT in Oct-Jun 2022/23 MY.

 

Coming month all market participants will watch precisely how the harvesting campaigns are performed in the US and the Black Sea. As well, prices in the Black Sea region will depend on the development of exports from the deep-sea ports of Ukraine. Will the corridor be done without Russia? Will China interrupt the situation at the start of corn export campaign 2023/24? At the same time, most prayers and actions are done for Ukraine to win the war, started by Russia, and relaunch its pre-war routes.

Published by Miller Magazine
https://millermagazine.com/blog/black-sea-to-offer-less-corn-for-the-world-in-202324-5333