The year 2021 was spectacular for US corn, with prices up nearly 45% year on year, and fundamentals suggest that US corn values are likely to be supported in 2022.
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Tightening supplies, growing ethanol demand, and strong exports have provided support to prices which looks set to extend into the new year.
US corn prices touched multi-year highs during April-May. The March 2022 corn futures contract on the Chicago Board of Trade reached as high as $6.405/bushel and was back over $6/bu coming into the end of the year.
Even as the corn harvest in the world's largest grower concludes, prices managed to stay firm on continued demand from the ethanol industry and extended support from soaring fertilizer prices. Corn is the primary feedstock for ethanol in the US and nearly 40% of the country's corn output is consumed by the ethanol industry.
Fertilizer prices saw an unprecedented rally in the past few months following a surge in prices of key feedstocks and certain export restrictions put in place by supplying countries. Prices of all major fertilizers have shot up over the last year -- some have more than doubled. Since corn is a fertilizer-intensive crop, a rise in fertilizer prices leads directly to higher input costs for US farmers and complicates their planting decisions.
Fertilizer prices impact supply
According to S&P Global Platts Analytics, a 3 million acre shift from corn to soybeans is possible in the US, with both corn and soybean acreage at around 90 million acres in the marketing year 2022-23 (September-August), due to fertilizer price and supply constraints. Soybean is likely to become attractive as it has lower fertilizer requirement.
Rabobank holds a similar view. "Rabobank expects corn acreage in 2022-23 will fall to 91.8 million acres as input-squeezed margins, unfavorable crop rotations, and competition outweigh CBOT corn high price and historically advantageous ratio to soybean," it said in its Agri Commodity Market Research Outlook 2022.
Price is just one piece of the puzzle as availability will also play a role, Platts Analytics said in a recent update.
"While Platts Analytics made an early call on 2022-23 acreage at 90 million acres for corn and soybeans, the price of natural gas will be a factor moving forward," it said, adding that "it is our opinion that a recent drop in the price of nitrogen can move the needle slightly in favor of corn but not to the extent some are suggesting."
The higher input cost for corn also means that corn prices will need to stay elevated to be profitable.
"The task of the agricultural markets from here will be to keep prices high enough to the farmer for nitrogen intensive crops such as corn to maintain economics that are favorable to corn production relative to other crops," IHS Markit said in an October update.
Beyond fertilizers, US corn prices are also likely to take support from rising demand from the ethanol industry.
Ethanol demand recovery boost DDGS supplies
Ethanol production as well as ethanol cash margins in the US have been hovering around all-time highs for the last few months, which has also resulted in increased DDGS supplies.
"Plants are full," a source said. Margins for the full crush reached a high of 175.314 cents/gal on Nov. 24. Since then, margins have cooled to just over 100 cents/gal as of mid-December but remain 50 cents/gal above the same time in 2020, according to the Platts Analytics ethanol cash margin model (prompt Argo ethanol + prompt Chicago DDGS).
"US ethanol production rose from 2020 to 2021 and will increase again in 2022," Platts Biofuels Analytics Global Manager Corey Lavinsky said. This will inevitably pump more supply into the DDGS market.
"Ethanol run rates remain strong, which is pushing additional product into the market, but firm domestic demand is keeping values supported," the US Grains Council reported.
Ethanol demand, which has supported US corn prices well into the harvest, are likely to provide continued support in 2022.
"The ongoing US ethanol demand renaissance will bring greater competition to the export market and push US corn demand in 2021-22 to a record 14.98 billion bushels. Production will barely exceed use leaving ending stockpiles near 1.35 billion bushels," Rabobank said.
Meanwhile, corn export demand is also forecast to be supportive of values into 2022 despite some declines from the pace in 2020. Total US corn exports jumped 54% from 2019 to 2020, and current projections from the USDA have only called for a 9% decline for the 2021-2022 crop year.