Global corn buyers are expected to deal with high prices for another season in marketing year 2021-22 (October-September) and possibly beyond due to supply troubles, weather risks and elevated prices of alternative feed grains.
The September corn futures contract on the Chicago Board of Trade was trading at $5.51/bushel at 5:20 am CT on Aug. 30, up 45.8% year on year.
Corn prices are currently supported by the steep fall in Brazil’s production due to drought and shrinking stock levels in the US.
Brazil and the US are the top two corn exporters in the world.
Brazil’s 2020-21 corn production is forecast at 86.65 million mt, down from the record 102.5 million mt in 2019-20, the country’s national agricultural agency CONAB said earlier in August.
Corn ending stocks for 2020-21 in the US are seen at 1.17 billion bushels, the lowest since 2012-13, according to the US Department of Agriculture.
“Corn futures remain supported above $5/bu through next summer and beyond. December’22 corn continues to trade around $5.15/bu so it certainly lends itself to the futures prices remaining just above $5/bu,” said Peter Meyer, S&P Global Platts head of Grain and Oilseed Analytics.
Feed grain consumers should not expect a near-term easing of supply risks, Rabobank Senior Commodity Analyst Michael Magdovitz said in a report.
“This year, the resupply will fall woefully short — and CBOT corn prices will remain elevated,” Magdovitz said.
La Nina threat
Southern Brazil and Argentina suffered a rainfall deficit in 2020-21 due to the weather phenomenon La Nina, which can lead to lower-than-usual precipitation in South America. As a result, corn and soybean yields are typically below trend during the La Nina years, particularly in Argentina.
The La Nina troubles are likely to continue.
“The consensus among the models is that a return to La Nina will occur during the Southern Hemisphere spring and will continue throughout most of the Southern Hemisphere summer,” weather agency MAXAR said in a recent report.
Limited alternatives
Whenever corn prices are high, buyers start looking for alternatives to replace some proportion of corn with wheat, barley and sorghum.
However, if global feed grain production forecasts are any indication, livestock and poultry producers are likely to find it difficult to shift from corn to other feed grains.
Lower-than-expected production in Russia, the US and Canada — all major exporters — in 2021-22 due to unfavorable weather conditions have pushed prices of wheat higher.
Global production of barley is also seen falling to 149.4 million mt in 2021-22, down 10.8 million mt from 2020-21, according to the Department of Agriculture’s Foreign Agricultural Service report.
Meanwhile, global sorghum output is seen at 64.63 million mt in 2021-22, slightly higher than 62.26 million mt in 2020-21.
China wildcard
Global corn prices will be greatly influenced by China’s imports in 2022.
China’s feed grain imports have dramatically increased in 2020 and 2021, especially for corn, as four years of corn auction beginning in 2016 depleted stocks and flat production in the last few years created a huge supply gap in the domestic market.
Total corn imports by China were at 18.16 million mt during January-July, up 297.5% year on year, customs data showed.
Imports of feed grains like barley and sorghum have also remained robust so far this year.
During January-July, China’s sorghum imports soared 157% year on year to 5.9 million mt while barley imports surged 124.8% to 6.4 million mt, customs data showed.
China’s corn output is forecast at 271.81 million mt in 2021-22, up from 260.67 million mt in 2020-21, according to the Chinese Agricultural Supply and Demand Estimates, also known as CASDE.
CASDE also expects China to import 19 million mt corn in 2021-22, slightly higher than 18.2 million mt estimated for 2020-21. However, much of this hinge on corn production rising more than 10 million mt in 2021-22 amid recent floods in Henan, a major producer of the cereal, and some delay in crop development in northeast China.
China’s feed manufacturers were able to replace corn with wheat for most part of this year as there was a wide gap between the prices of the two grains, but this may change with rising global prices of wheat.
After importing a sizable amount of wheat for feed this year, China will have to have to decide on using wheat for feed in 2022 based on the price ratio between corn and wheat for the next protein cycle, Meyer said.
“Estimating China’s corn imports is difficult at best. A return to more widespread corn feeding would raise overall Chinese demand to 292 million MT in our opinion. Historically, China has had difficulty producing more than 260 million MT annually, suggesting a 32 million MT imbalance in 2022. Production above this 260 million MT level would reduce global Chinese corn imports incrementally,” he said.
Source: Platts