Corn prices reached multi-year highs in mid-2021 underpinned by a heating demand from China and a series of supply concerns and disruptions at key producing regions.
Prices cooled off somewhat during the second half of the year and market fundamentals suggest a slightly bearish tone could prevail during 2022, although weather-related risks remain that can dampen global supplies and shift fundamentals around.
2021: Multi-year highs
A steep uplift in corn prices was underway by mid-2020 on the back of large Chinese purchases as the country started to rebuild its hog herd after African swine fever outbreaks through 2018-2019.
Prices remained supported as a heatwave hit the US, raising concerns over crop development conditions – although it became increasingly apparent that much of the heat hit at the heartlands of wheat production and spared the corn area.
Nonetheless, the surge in wheat prices contributed to the continuing upswing in corn prices.
Prices were further bolstered through the second quarter of 2021 as dry and warm weather conditions, followed by frosts, meant the Brazilian second corn crop suffered one of the largest crop losses on record.
Front-month corn contracts at CBOT peaked at $7.36/bu in May 2021, the highest level since March 2013 and roughly double the average price between mid-2014 and mid-2020.
After May, corn prices pulled back somewhat as attention shifted to the new 2021-2022 crop with farmers expected to sow as much corn as they could in the US.
At the same time, estimates pointed to bumper corn crops in Ukraine, Argentina and Brazil, with the uptick in planted area allaying some of the concerns around a second consecutive La Niña year.
With the phenomenon often associated with hotter, drier conditions in parts of the region, the outlook weighed on South American crop expectations as ongoing droughts jeopardized yields in the region.
From October 2021, corn prices found some support again mainly as US corn ethanol prices, demand prospects and production margins meant more corn headed into the grind, while upswings in other agricultural commodities provided further support.
Fastmarkets Agricensus estimates some 45 million tonnes of corn has gone into the production of US ethanol since the start of the new marketing year in September 2021, versus some 41 million tonnes across the same period of 2020, based on analysis of weekly US Energy Information Administration data.
That’s a near 10% increase and puts the US sector well on course to surpass the 133.4 million tonnes estimate that the USDA has in place for full-year 2021-2022 corn use in ethanol production.
Front-month CBOT futures were trading at $5.93/bu as of December 31, about 18% above the recent bottom reached in September-October while also 18% below the peak seen in May, but started the New Year back above the $6/bu level out as far as the July 2022 contract.
2022: Supply to outpace demand
From the supply side, more corn is expected to be available in 2022 than in the previous year.
Global corn production is expected to jump by 86 million tonnes on the year to 1.2 billion tonnes in 2021-2022, according to USDA’s supply and demand figures released in December, as farmers react to 2021’s strong prices.
The USDA’s forecasts show that the massive yearly uplift is to be mainly driven by larger crops in Brazil, the US, China and Ukraine.
Together, output at these key producers is forecast to increase by 77 million tonnes in 2021-2022 with production figures pegged at 382.6 million tonnes in the US, 272.6 million tonnes in China, 118 million tonnes in Brazil and 40 million tonnes in Ukraine.
Production is also expected to increase by 4 million tonnes in Argentina, with output currently estimated at 54.5 million tonnes.
Global corn demand is also expected to increase in 2021-2022 with total consumption estimated at 1.2 billion tonnes, 60 million tonnes higher on the year.
The largest individual increases are forecast in China, the US and the European Union where consumption is estimated 9, 7 and 3 million tonnes higher respectively.
Hence, global supply is forecast to increase ahead of demand, pushing global ending stocks up and potentially pressuring prices in 2022 from a fundamentals perspective, according to USDA data.
2022 risks
However, upside risks remain – with the main one again hinging on weather-related crop losses.
Eyes are particularly turned to South America as a second consecutive La Niña year may underpin droughts and impact crop development conditions – at a time when input costs for fertilizers have spiraled upwards.
Brazil’s summer corn crop has already been downgraded by 1.4 million tonnes to 20.3 million tonnes according to local consultancy Agrural’s estimates released in December.
By the end of the first quarter of 2022, eyes will turn to Brazil’s large second corn crop with farmers and end-users haunted by still-fresh memories over the massive weather-related losses faced in 2020-2021.
And, with corn particularly reliant on fertilizers, the high cost of nitrogen and other inputs is likely to reduce the usage of those inputs through the new year – potentially leaving the crop even more dependent upon conducive weather conditions.
In Argentina, weather forecasts also indicate dry and warm weather conditions during the southern hemisphere summer.
According to the Buenos Aires grains exchange BAGE, the largest risks to Argentine crops are related to the widening of the dry period in the Pampas region that could last from January to as late as early-March.
In both instances, the substantial increase in planted area should provide some redress to any fall in yields, but should weather conditions get close to the 2021 drought then significant damage could still be noted.
Finally, for the US looking further ahead, expectations of a significant increase in biodiesel production capacity across the country as the sector looks to accommodate new biofuel mandates that have galvanized outlooks for advanced biodiesel production.
That is likely to soak up ever more of the country’s soybean production and could see farmers again maximizing planting of beans over corn in 2022-2023.
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