Corn is back at historic highs as Russia’s invasion of Ukraine and adverse weather put pressure on global supply and exports. How far will these pressures push the price of the grain, and what is the latest corn price forecast?
Supply and demand dynamics
Like a number of commodities, the corn price is driven by supply and demand factors, largely dominated by US agricultural policies according to the US Department of Agriculture (USDA).
Other effects on the supply side include seasonal factors on the outcome of harvests, beginning stocks of corn and yield. Demand factors include industrial use of grains in animal feed and for human consumption, as well as supply side effects in foreign countries affecting export demand.
Prior to the great financial crisis, the price of corn futures typically fluctuated between $2.00 and $3.00, except for the 1996 grain shock which pushed the price above $5.00. The financial crash set off more insecurities in 2008, causing another spike to $7.37.
According to the International Monetary Fund (IMF), economic pressures, stagnant productivity for corn production, and some disappointing harvests put upward pressure on corn prices in 2011, bringing them to record highs of around $8.06 by 2012. Since then, even in more stable times, the grain had settled at a new, higher support just above $3.00.
The price of corn has skyrocketed since Russia’s invasion of Ukraine, and has stayed elevated as fears that the war would increase food insecurity largely came to pass. In the year-to-date, the price is up more than 30%, hitting $8.14 on 29 April 2022, and closing at $7.65 early on 14 June.
A technical analysis of corn as of 14 June showed mixed short-term sentiment. The commodity was trading above the 10-day moving average (MA), but below the 20-and 30-day MAs.
Meanwhile, the relative strength index (RSI) was broadly neutral at 47. A reading of 70 or above would initiate that the asset is overbought, while a reading of 30 signals an undervalued condition.
Over the short run indicators were more evenly divided between bullish and bearish, looking more bullish from a longer-run perspective between the 100-day and 200-day analysis mark.
The commodity has been above its pivot point of $7.60 for about a week, with its recent resurgence making R1 resistance of $8.00 look more achievable.
Ukraine supplies still constrained
Russia’s invasion of Ukraine has put a number of commodities in a state of flux, from Russian oil and natural gas to Ukrainian wheat, pushing the prices up to historic highs, increasing concerns of a famine in the developing world. This has driven the inflation rate to 40-year highs in the West.
Corn is another commodity exposed to the production and distribution problems caused by Russia’s invasion of Ukraine. According to indexmundi, the US and China are responsible for more than half the world’s total corn production, with Brazil, the EU and Argentina other big hitters. Ukraine, while relatively modest, is still the eighth largest global producer.
That, though, ignores the fact that the US and China will consume a lot of what it produces, unlike Ukraine.
While only accounting for a small share of production, the country accounts for 11% of global exports, adding disproportionate pressure on the rest of the globe. Those exports have been largely wiped out as a result of the closure of Ukraine’s Black Sea ports under the Russian assault.
Only half of the sunflower and corn that was being shipped pre-conflict is being exported now, according to JPMorgan.
“We hold concerns for the consistent availability of corn and sunflower oil exports through the peak period of shipments in the second half of this year,” Tracey Allen, Agricultural Commodities Strategist at J.P. Morgan Research, said in a study.
Ukrainian farmers haven’t been deterred by shelling from the Russian army or threats to the status of exports, planting more corn in response to demand, according to the USDA.
“Ukraine corn production for marketing year 2022/23 is forecast at 25.0 million metric tons, up 28 percent from last month, but down 41 percent from last year,” the USDA said.
“Yield is forecast at 5.56 tons per hectare, essentially unchanged from last month, but down 28 percent from last year. Harvested area is forecast at 4.5 million hectares (mha), up 29 percent from last month, but down 18 percent from last year.”
Climate pressures emerge
Another uncontrollable pressure on corn is weather. Good weather saw corn prices partially retreat recently, but it could be short-lived based on the ‘La Niña’ winter engulfing parts of the US.
“Drought is already entrenched across the U.S. Plains – typical of a La Niña winter,” Allen said.
“The outlook according to our in-house meteorologist suggests that this will likely intensify into early summer, particularly across the Southwest, parts of the Plains and Texas, weighing on yield potential for winter wheat, cotton and corn particularly.
“We continue to see further upside price risks for milling wheat amid persistent challenging growing conditions in the U.S.”
Research from S&P Global showed that dry weather is expected to force US corn contraction down in 2022/23, adding to price pressures.
In the long run, the supply of maize (corn) is expected to decline as a result of climate change, according to a NASA study published in Nature Food, with yields forecast to drop 24% by 2030.
Corn price forecast for 2022 and beyond
In JPMorgan’s research, the broker said it maintained its forecast for 23 million tonnes of Ukrainian corn exports for 2021/22 ending September.
“To reach our 23 million tonne 2021/22 export forecast, one million tonnes of corn (approaching maximum line capacity) would have to be exported each month for the remaining five of the marketing year,” said Allen.
In a Barclays research note on food producer Tate and Lyle shared with Capital.com, analysts noted current difficulties had put upward pressure on corn price predictions.
“We highlighted that Russia and Ukraine combined represent one of the world’s key breadbaskets, accounting for around one-quarter of global exports of wheat and corn,” they said.
“With the closure of key Black Sea ports since the 24th of February and sanctions increasingly disrupting supply chains from Russia, much of this global grain supply could stall for as long as the conflict continues. The impact on prices has been dramatic, with spot EU maize (corn) prices and EU wheat prices up >30% and 27%, respectively, since the war began on 24th Feb.”
According to corn price forecast and analysis by CRM Agri shared on Feed Navigator, it was expected that the prices would remain elevated through 2022 and 2023.
“Corn markets risk coming under pressure as harvest looms, but this is far from a fully bearish market,” CRM Agri said.
“The drought impacted Brazilian crop is likely to drive additional new crop demand to US markets. The war in Ukraine is supporting old crop demand, while China has continued to purchase US corn, and with every additional sale, US stocks decrease.”
USDA’s agricultural projections for 2021, released in February 2022, suggested nominal corn prices could fall from $4.80 a bushel in 2022/23 to $4.00 by 2026/27, and then remain stable at that level through 2031/32. More recent corn price forecast put the average price for the current market year at $6.75.
A Congressional Budget Office report from May 2022 gave a corn price forecast of $6 this year. Their corn price forecast for 2025 suggested the price could fall to $3.95, slumping further to $3.90 in 2030.
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