In this list
Agriculture | Shipping

Commodities 2023: Diminished demand, drought impacts likely to extend into next year for US corn

Agriculture | Biofuels

Potash Futures

Agriculture | Biofuels | Vegetable Oils | Energy Transition | Carbon | Emissions

Trash to Treasure: the role of UCO and POME in energy transition

Oil | Energy Transition | Energy

APPEC 2024

Oil & Gas | Shipping | Crude Oil

Multiple attacks reported on shipping by Houthi drones and missiles in Red Sea

Biofuels | Energy

S&P Global Platts Proposes to Revise Chicago Ethanol Price Assessment Methodology

Oil & Gas | Shipping | Coal | Metals | Electric Power | Energy Transition | Refined Products | Bunker Fuel | Fuel Oil | Marine Fuel | Metallurgical Coal | Steel | Ferrous | Nuclear | Renewables | Crude Oil

Commodity Tracker: 5 charts to watch this week

For full access to real-time updates, breaking news, analysis, pricing and data visualization subscribe today.

Subscribe Now

Commodities 2023: Diminished demand, drought impacts likely to extend into next year for US corn


Weather to remain key driver of US corn's supply-demand trajectory

Low export, domestic demand for US corn may pressure prices

DDGs production seen slow on cold weather, falling ethanol margins

  • Author
  • Shikha Singh    Sergio Alvarado    Luke Lundgren
  • Editor
  • Ankit Rathore
  • Commodity
  • Agriculture Shipping
  • Tags
  • United States
  • Topic
  • Commodities 2023

Continued dryness in parts of the US has resulted in logistical troubles for US corn, leading to higher freight rates, uncompetitive prices and diminishing export demand, with analysts saying that some of these issues are likely to extend into the calendar year 2023.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

According to market sources, the weather is going to play a key role in determining the trajectory of US corn in 2023-24, at least until the first half of 2023.

If the drought and dryness continue in the US, the planting of the MY 2023-24 (September-August) US corn crop is likely to get affected, also result in low water levels, further exacerbating the logistic issues, said Peter Meyer, Head of Grains, Oilseeds and Advanced Feedstocks Analytics at S&P Global Commodity Insights. This could elevate the already uncompetitive prices of the US corn crop.

"I think the number one thing people would be looking at next year is weather and the second thing is the poor demand," Meyer said.

Dryness and logistical issues

Persistent dryness in the US has been affecting corn exports for the past few months.

"Low water levels in the Lower Mississippi River affected the potential of US corn export due to the record high barge freight cost amid barge transit restrictions," a corn in-barges market participant said. Restrictions were for less cargo per barge and less barges per tow, meaning with lower water levels, vessel operators and shippers have had to use lighter loads because of draft restrictions.

As of Dec. 21, barge freight cost to move corn was down over 25% from its record levels in October and November but remains high for the season.

The barge freight cost to move corn from Illinois to the US Gulf Coast for H1 2023 will be around 45%, or 25 cents/bushel of corn higher than the previous year, S&P Global data showed. Increased freight rates might reflect in the prices of US corn, making it further uncompetitive in the global markets.

Additional factors such as a strong US dollar are also making US corn unattractive to buyers and analysts said that the trend is likely to continue until at least mid-2023.

Diminished demand

There is really no demand for US corn, said Meyer. Export demand, along with a demand from the ethanol industry, is also muted right now due to winters, he added.

The US Department of Agriculture cut its estimate for US corn exports for the MY 2022-23 crop by 75 million bushels from its previous estimate to 2.075 billion bushels -- the lowest after MY 2019-20 -- citing competition from other exporters, as US corn prices at present are uncompetitive compared with its rival countries, Brazil and Argentina.

As of Dec. 15, US corn sales were reported at 39% of the USDA's forecast. "This makes the new target of 2.075 billion bushels even more vulnerable in our opinion," S&P Global said in a recent report. "A lower number nearer 2 billion bushels seems like a good bet at some point."

China's corn demand would also be a key driver for US corn in 2023. After emerging as a top buyer of US corn in the last two-three years, China's corn demand in 2022 has been muted.

Additionally, there are also concerns about lower domestic demand. "The economy continues to pose some risks for ethanol demand, whereas we expect to see an 8% reduction in beef production in the year ahead to cap feed usage as well," said Arlan Suderman, Chief Commodities Economist at consultancy firm, Stone X.

Planting and prices

According to Meyer, although economics favor corn planting in the US, concerns about persisting drought and crop disease may encourage farmers to look at soybean's way.

There is an indication that as tar spots are out there -- a corn crop disease which is typically prevented by rotating crops -- will go into the thinking as well, he said.

Initial estimates from S&P Global for US corn and soybean acres in the MY 2023-24 are probably going to be around 89 million acres or 89.5 million acres each, said Meyer.

Suderman from Stone X, however, estimates US corn acreage to expand to 92.0 million acres in 2023-24.

For US corn prices, analysts seem to have a varied view.

"Even with Brazil's record corn production, I don't see the corn prices collapsing," said Meyer.

Deficits in the US even after the low demand are going to give the market a little bit of support, he said. Additionally, uncertainty over Ukrainian corn output and weather concerns in Brazil and Argentina are likely to cushion US corn prices and keep them around the level of $5.75/bu, he said.

Another US-based grain analyst, Dale Durchholz, however, seems to hold a different view.

"I am probably one of only a few people who sees a more negative price picture unfolding during 2023," he said. "I wouldn't be shocked to see new crop corn futures trade at $5/bu, or slightly lower by the end of next year."

DDGs production seen subdued

The production of dried distiller grains with solubles is expected to see a slow start heading into 2023. Colder temperatures that increase operating costs, falling ethanol margins, and lower ethanol blending demand point to a lower ethanol/DDGs production rate.

Outright production volumes have not seen a drastic increase, but since the week ended Oct. 4, production has outpaced demand by an average of 148 million b/d, peaking at 229 million b/d in the week ended Dec. 2. "Ethanol production has to come down, there is just no chance to continue at this pace with these margins and stock builds," said a source.

In 2022, DDGs' export markets saw a huge impact from logistical difficulties that are anticipated to extend into 2023.