2 July 2020
- We reiterate our view that the supply of corn along the supply chain is contracting. Therefore, a stronger price continues to be expected, where the blue line is the output of the proprietary Forward Supply Model. The model measures the magnitude of contraction as opposed to nominal volume, which explains the abnormally low position of the blue line on the chart. Weather is also an increasingly important factor in the corn price formation in late June-early July. Our latest view for the impact on the new crop also turned forward supply-negative.
- The weakness in demand during Q1 and Q2 2020 is now behind us. Our proprietary metric for weekly global forward corn demand continues to indicate that a positive short-term demand shock will continue to accumulate. The price of corn is following closely. Strong price reaction is not warranted, as overall S&D balance along the value chain depends on both supply-push and demand-pull forces. Additionally, the improvement is starting from a very low base.
- The macroeconomic environment continues to improve, but the momentum is slowing. Evidence suggests that credit is already expanding in key consumption regions but the demand for credit lines from economic entities is flat-lining. The almighty FX markets are lending a hand to the corn bulls by steadily reducing the export incentive, and as a result, the overall supply on the seaborne market.