Feature: US corn farmers likely to be reluctant to sell new crop despite high prices

High agriculture input costs and inflation are likely to make US corn farmers hesitant to sell their 2022-23 marketing year (September-August) corn crop despite prices being above the historical average, analysts and farmers told S&P Global Platts.

Uncertainty around various other factors may also be a contributing factor to farmers' reluctance.

Farmers could be reluctant to sell because there have never been so many moving parts in recent times for them to consider while making marketing decisions—like supply chain issues, fertilizers and herbicide availability, high interest rates, Ukraine-Russia tension and Brazil crop getting smaller than the initial forecasts, said Pete Meyers, head of grains and oilseed analytics at S&P Global Platts Analytics.

Supply-side issues over the last few months have led to unusually high prices of fertilizers in the US currently with US corn planting right around the corner, typically starting in March. There are also concerns about the availability of fertilizers during the time of planting.

The combined cost of the three main fertilizers — nitrogen, phosphate and potash — is expected to be around 21%-23% of the total cost of corn production in Iowa in 2022 compared to 14%-16% in 2021, according to an estimate from Iowa State University.

Inflation worries

"Managing risk is important for a farmer every year, but this year with such a substantial increase in cash laid out to put the crop in the ground it will become that much more important," said Angie Setzer of Consus, which provides marketing and agronomic services in the US. "Farmers are likely to spend more time making a marketing decision and hopefully making adjustments as needed to cost structures in order to best be aware of how market changes are impacting their bottom line."

Inflation is also a major contributing factor that is keeping farmers wary.

"Inflation is on everyone's mind too and nearly everything costs more than one-two years ago, so just what is a fair price for grain these days? We've seen crazy rallies recently in many markets and prices have gone higher than anyone could imagine," said Jonathan Mikkelson, a Minnesota corn and bean farmer. "Everyone seems to want to buy everything today as price will likely be going up tomorrow so from a seller's perspective, I think it's not an environment where you want to be oversold too early in the year."

Over the 12 months from January 2021 to January 2022, the Consumer Price Index for All Urban Consumers rose 7.5%. This is the largest 12-month increase in 40 years, according to the US Bureau of Labor Statistics.

As for marketing, the high input costs tend to make farmers more reluctant to sell, because they believe they are "owed" a higher price. These bullish attitudes tend to make the producer slower to sell grain, StoneX Chief Commodities Economist Arlan Suderman said.

The latest open interest position published by the Chicago Mercantile Exchange also may indicate that farmers and producers are less hedged this year as compared to a year ago.

US corn prices, however, have remained strong. The most active May contract was at $6.65/bushel, up 39% on the year on the Chicago Board of Trade. S&P Global Platts assessed CIF NOLA US corn for March shipment at $7.36/bu on Feb. 18, compared to $6.25/bu at the same time last year.

Once bitten, twice shy

In the last two years, many farmers were active in selling corn but realized that they could have made more profits as the prices continued to rise.

"Where in previous years the odds of $5 cash corn and $13 cash beans seemed like a pipe dream, in the current environment $7 cash corn and $16-$17-pluse cash soybeans don't seem all that far-fetched or unrealistic," MIkkelson said. "I also think it is a bit difficult psychologically to be super aggressive selling new crop when corn is 70-80 cents less and soybeans are $1.50-$1.60 less than current prices for fall delivery."

Marketing of the new corn crop is also likely to a backseat as farmers in the US gear up for the planting season.

"We tend to see a typical lull in farmer selling from March into May as the focus shifts to spring fieldwork," Setzer said. "I don't expect this year to be much different without seeing futures prices moving to a new pricing level."

A leading grain exporter in the world recently said in a note that some estimate pegs the US farmer corn sales at 70%-80% in old crop corn and 25% in MY 2022-23 crop.