19 May 2020
- Supply of corn along the entire supply chain remains high despite the modest contraction recorded in three clusters of weeks since January. Weakness in seaborne demand for the best part of Q1 is one of the reasons for the sharp accumulation of corn in the system. The first negative supply shock during week #1-4 was the strongest, and the market is still not able to shake off the negative impact. We are not registering any help from the inventory behavior either. The cash & carry arbitrage values for the physical corn market simply do not justify speculative short-term accumulation of stocks and yet we see stocks rising - an ominous sign for downstream demand.
- Weakness in demand during Q1 mentioned earlier in the Supply section is clearly visible for weeks #4-16. In a noticeable change from our demand view last week, today we assess the demand for corn as weaker in the short-run. Our proprietary metric for weekly global spot corn demand is displayed in the Chart of the Week, which indicates that the positive short-term demand shock in April is reversing back to mean values.
- The macroeconomic environment remains challenging and unlikely to provide material support for prices in the short-term. We continue to find a lack of evidence for meaningful credit expansion, with the impact on demand clearly visible. Another point of concern for us is the negative reading of the proprietary FX Impact Index. The FX model incorporates not only the incentive to export at origin but also the purchasing power of the end-user. There are early signs of some strength from the end-user side emerging and we will be watching closely for developments later this week/early next week.