Corn in the 2021/22 season. Harvest, export and logistics

Barva Invest analysts specifically for USM talk about corn yields, future exports and related logistics.

In the previous season, corn performed very well in terms of profitability of cultivation, which in turn contributed to an increase in the area under this crop in 21/22 MY.

The official estimate of the area under corn crop from the Ministry of Agrarian Policy of Ukraine is 5.35 million hectares, which is very close to the average estimate of market participants of 5.45 million hectares. Weather conditions for the 2021/22 harvest were far from ideal, but significantly better than the previous season.

Thus, the yield of Ukrainian corn is estimated at 36.5 – 37.5 million tons (depending on the agency), which is 20% higher compared to the previous season. Consequently, the export potential is in the range of 30.2 – 31.2 million tons.

One of the key features of the 2021/22 season is the delay in the harvesting campaign by 10-20 days, depending on the region. Farmers report that high rainfall combined with low sunny days is the main cause of delayed plant development. It is also worth considering that, for most of the forward period, corn prices were at fairly high and attractive sales levels ($220-260/t CPT port excluding VAT).

In its turn, this encouraged local farmers to sell future crops for October, November and December supplies. Most trading companies estimate the forward program for October-Dec at a level of 7-8 million tons. Traditionally, corn exports from Ukraine during this period are 8-10 million tons. In the 2021/22 season, corn exports for October-Dec can even exceed 10.0 million tons due to a large forward program, as well as the emergence of spot demand from countries such as Iran, Egypt and Turkey, where grain stocks in the domestic market remain at very low levels.

However, the flip side of the coin is the financial capabilities of Ukrainian producers. Last season was highly profitable in many crops. Accordingly, the demand for spot sales from manufacturers decreased, which in turn partially limits the supply for sale. At the same time, in autumn the pressure on Ukrainian logistics will increase significantly. On the one hand, Ukraine has a record wheat harvest, therefore, exports will remain at a high level until the end of the calendar year. On the other hand, the emergence of a new crop of corn (~37.0 million tons) and sunflower (~17.0 million tons).

The combination of a large wheat harvest and at the same time a large harvest of corn and sunflower will put strong pressure on logistics opportunities, especially during the period Oct-Dec 2021. In turn, this will put at an advantage of producers, as traditionally logistical problems lead to higher prices for CPT-port basis. When it comes to exports, one must take into account the low corn crop in Brazil, which is our main competitor in the global export market. Indeed, the decline in export supply from Brazil leaves part of the European as well as Iranian demand uncovered.

The EU expects a large harvest of its own corn, which partially reduces the need for imports. Nevertheless, in the world market over the past 2 months, the prices for milling wheat have increased significantly.

At the same time, corn remained under pressure due to improved weather conditions in the US, as well as due to the risk of revising planted areas upwards.

The high price disparity between milling wheat and corn is already prompting Asian buyers to look towards increased consumption of corn in feed. South Korea, Thailand and Vietnam will continue to increase their purchases of corn against wheat in the coming months. When it comes to the Ukrainian export market, one should not forget about China, which actively bought future crops through forward contracts.

Accordingly, thanks to a large forward program and high demand in the spot market, we have every chance of seeing high export rates by the end of 2021.