In the last two trading weeks, the European grain maize price has risen sharply. This means that the price level even exceeds that of wheat. We are looking for opportunities to achieve a lower feed price for the coming season. The effects of drought are gripping the market. You can read what the market can expect in the longer term in this analysis.
Heat and drought in the European Union, which have been affecting southern Europe and France for a long time, are leaving their mark on crops. Concerns about this are now also noticeable in Central, Northwest and Central Europe. In many places, the drought came just too late to cause much damage to wheat. This is a different case for grain maize. The crop is blooming and is busy filling the cob. That is a crucial moment that drought and heat are currently influencing.
Revenues significantly lower
In the most recent MARS report the European grain maize yield will be reduced by 8% to 7,25 tons per hectare. That is almost 8% below the five-year average. In France, the Joint Research Committee (JRC) has estimated hectare yields to be 11% lower than last year. For Germany this is 13% and in Poland 8%. For the Netherlands, the JRC thinks that the yield will be 10,8 tons per hectare compared to 12,9 tons last year.
Current crop figures from the United States also have an impact on the market. In the USDA's Crop Progress report, the status of corn crops in the 18 most important states has decreased by 3% to 61% good/excellent. 62% of corn is currently in flower compared to a five-year average of 70%. Only 14% of maize crops are in poor to very poor condition. That is a smaller percentage than average.
Heat in Cornbelt
The corn belt – a part of the Midwest where most grain corn is grown – experienced moderate temperatures and rain showers last week and again this week. These are positive for crop development. The expectation for next week is that there will again be extreme heat and persistently dry weather. With temperatures well above 30 degrees Celsius, it will be very warm next week in Iowa, the largest corn producing state. This type of weather comes at an important time in the growth stage of corn. However, stock market analysts and market participants appear more concerned about the impact on soybeans, which are very sensitive to drought at this stage.
The price development of the corn market is slightly dampened by the export deal that Ukraine and Russia concluded with each other. Repeated bombings of port facilities have partly changed the mood. Looking at the price increases – around 7% this week – the upward movement is still strong. Ukraine's export level is currently only a third of what is usual. Storage silos in the country are still full of grain corn. This will probably cause problems with the new crop.
Brazil is working on early exports
China is the largest buyer of Ukrainian corn. The sensitive trade relationship between China and the US may play a second role - after the war in Ukraine - in the current market, but the Chinese are now making alternative plans. This week it was announced that the Brazilian government and China are working on a trade protocol to export corn. China is already the largest buyer of soybeans from the country. In Brazil, a second crop of grain maize is common after soybeans. This so-called 'safrinha maize' has now been harvested for 62% and accounts for 70% to 75% of the total Brazilian maize production. The total yield is estimated at 87,3 million tons. If the Brazilians manage to reach an agreement with China, corn exports could take place in the coming months. The Chinese government previously said it would not do this until early 2023. Exports in the second half of this year run parallel to the US harvest and their start of the export season.
European market price rises
In Europe, the Paris futures market Matif is mainly influenced by the weather. On Thursday the price closed at €352. This means that the price remains at the highest level since May 26. That's an increase of 22% since the low on July 6. This concerns the August contract that expires on Friday, August 6. The price can still rise considerably in these last trading days, as was also visible in 2021. For the time being, the November contract – the first delivery period of the new harvest – also remains in place with a closing price of €323,50 on Thursday. If the drought in Europe continues, this will also provide a foundation for a persistently high corn price that is more than €100 above the multi-year average.
It is also remarkable that the price of grain corn has been above that of wheat since the beginning of this week. On Thursday, corn prices closed $10,75 higher while the September wheat contract stabilizes. The last time this happened was in the summer of 2021. The remainder of the old corn harvest was also sold at a significantly higher price than the new wheat harvest. After the expiration date, this equilibrium is likely to be restored.
Long term: High prices
Also for the long term, read: the rest of 2022, we have to take into account significantly higher market prices for grain corn. It is still too early to make firm statements about the yields, but it is clear that they are lower than average in Europe. The situation in Ukraine remains unpredictable and could have a major impact on market developments. Even if Black Sea exports increase, this will not solve all problems in the short term. The availability and price of natural gas are also important when drying the grain maize, which will soon play a role during the harvest and can therefore influence the market.
Pig farmers or other livestock farmers who feed grain corn in their rations must take into account persistently above-average prices that move at or above €300 per tonne. Perhaps a temporary dip in the market, for example due to precipitation, a good American harvest or large-scale resumption of Ukrainian exports, offers opportunities to hedge for the coming season. The harvest will probably start early this year, especially in Southern and Central Europe.