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ANALYSIS: Unanswered questions justify US caution over huge export sales

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A head start doesn’t always mean a winning finish.

 

That is true in crop exports as well as sport.

 

US officials surprised many investors by failing in their latest Wasde briefing to up their forecast for the country’s corn and soybean exports over 2020-21 closer to all-time highs, despite the season starting (this month) for both crops with the largest ever order book.

 

However, a bumper initial sales roster does not guarantee a strong final total, as history shows.

 

Corn’s poor correlation

Take US corn exports. Of the top 10 seasons for shipments since 1990-91, only half of those started off among the top 10 for forward bookings.

 

The record season of 2017-18, for example, with 61.92m tonnes, began in 13th position in terms of export rosters.

 

An even bigger catch-up was recorded in 1994-95, which started off with the smallest order book of any of the last 30 years, 5.7m tonnes, but ended up with actual shipments of 55.3m tonnes, ranking fifth in the export league.

 

By contrast, 2010-11, which had started off promisingly for US exporters, with their fourth largest volumes of forward sales of 15.1m tonnes, ended up as only the 19th best season.

 

Soybean shuffle

US’s soybean export record shows a little more consistency, with all but one of the top 10 seasons in terms of starting orders finishing in the top 10 for actual exports over the season too, the exception being 2012-13.

 

Even so, there is a marked reshuffle between those top seasons, with 2017-18 catching up from a ninth-placed start to end up as the second best for US exports.

 

The 2015-16 season improved to third place from eighth.

 

The outside in the top 10 was last season, ranked sixth after US merchants stymied initially by a lack of Chinese orders, amid the countries’ trade dispute, found alternative buyers, and found some late sales to China too after the phase one deal.

 

Politics, weather…

Indeed, events have a habit of scrambling initial signs on export dmand.

 

These events can be geopolitical, as with trade disputes, or economic, as with the world financial crisis, but often revolve around crop fortunes.

 

While 2012-13, for instance, started off looking like an OK season for corn exports and decent one for soybean ones, it fell short - proving the worst going back to 1990 for corn – as drought-pressed US crops came in even smaller than had been expected.

 

By contrast, 2017-18 US exports accelerated from modest starts thanks to dryness damage to South American crops, with Brazil’s corn crop seeing a 16.5m-tonne (16.8%) drop year on year to 82.0m tonnes, and while Argentina’s sank by 22%, and its soybean harvest plunged by nearly one-third.

 

Known unknowns

On all these scores, 2020-21 looks like having plenty of potential to offer surprises.

 

With a La Nina bubbling up, South American corn and soybean crops, in the early stages of seedings, could face significant weather tests before reaching harvest in early 2021. And there are, of course, question markets over US production too.

 

As for geopolitics or the world economy, with still-strained China-US relations and US elections, even before getting to the Covid-19 pandemic and how that pans out, even the short-term future is clouded, let alone looking out nearly 12 months.

 

And this before getting to upsets which have yet to hit the radar.

 

It is hardly surprising that USDA officials in the Wasde held off revising their estimates for 2020-21 US corn and soybean exports.

 

Elevated uncertainty looks like being a prevailing condition in ag markets for some time yet, as investors should remember.

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