By TIM ALEXANDER
URBANA, Ill. — On Monday, April 18 contracts for July corn futures were at their highest level since September 2012, rising above $8 per bushel. Though the corn price has pulled back from the 9-year high of $8.20 per bushel it hit at the beginning of the week, Chicago Board of Trade futures were still holding steady above $8 as of Farm World press time.
The corn price surge is due to prolonged effects from supply chain disruptions, high transportation costs and upward pressure on demand caused by the war in Ukraine. Poor weather in the Midwest is also delaying planting, stirring concern for a less-than optimal harvest and helping boost futures prices for corn.
“The back months in corn are still being supported not only by the Ukraine situation, but the wet and cold weather in the U.S. over the next few days,” said Terry Reilly, senior analyst with Futures International. According to the U.S. Department of Agriculture, U.S. corn planting was just two percent complete by Easter Sunday. For these reasons, corn is projected to be more profitable than soybeans through June 10 by a large margin, according to the University of Illinois farmdoc team.
“Unlike many years, corn is projected to be more profitable than soybeans on all planting dates from April 1 to June 10. In many years, soybeans become more profitable than corn later in the planting season,” noted agricultural economists Gary Schnitkey, Ryan Batts, Krista Swanson, and Nick Paulson of the Department of Agricultural and Consumer Economics at the University of Illinois, along with Carl Zuluaf, Department of Agricultural, Environmental and Development Economics at Ohio State University.
“Yield and profit declines do not become large until May arrives. In Illinois, there is still time for much of 2022 planting to occur in relatively optimal conditions from an expected yield and expected profit standpoint. Obviously, the weather will play a role in whether planting occurs in an optimal setting.”
The farmdoc team has revised their 2022 Crop Budgets three times to reflect the current market volatility, each time concluding that corn will prove more profitable than soybeans if planted in the recommended time frame. Prices used to make projections are $7 per bushel for corn and $14.80 per bushel for soybeans, based on mid-April 2021 cash bids for fall delivery in Illinois. The switch to soybeans from corn signaled in USDA’s Planting Intentions Report released on March 31 caused prices to swing even more in favor of corn, the team noted.
In addition to receiving an extra boost in demand for ethanol, an editorial published by Bloomberg pointed out that speculation in corn has also amped up, with the ratio of long-to-short money among hedge funds around 14 times versus a five-year average of about two times. However, farmers should not expect the price rally to continue, wrote Liam Denning, a Bloomberg Opinion columnist covering energy, mining and commodities.
“Money chasing momentum doesn’t guarantee an imminent crash, of course,” Denning opined. “And an intense drought or some other factor could mean an extended rally similar to a decade ago. But it does mean that if the weather gods don’t deliver, there’s an overhang liable to collapse quickly and messily. A recent analysis by Citigroup looking back to 2000 found that while outperformance in agricultural commodities can be dramatic, it’s also usually quite fleeting.”
Analysts agree that in order to fulfill worldwide demand for corn exacerbated by the Russian invasion of Ukraine and support the higher prices, a full and bountiful U.S. corn harvest must happen in the fall.
“It is incredibly important that we produce a maximum crop to keep prices stable,” said Sterling Smith, director of agricultural research at AgriSompo North America. “We are going to need perfect weather and right now we do not have perfect weather.”
Though the spike in corn prices will help U.S. farmers absorb higher energy and fertilizer costs, the increase comes with a dire caveat. As a result of Russia’s invasion of Ukraine future global food harvests could be reduced, according to World Bank president David Malpass. Speaking at a US Treasury event tackling food insecurity on April 19, Malpass said that the invasion had “triggered major threats to global food and nutrition security.”
The World Bank’s food price index reached an all-time high in March, when prices rose 11.5 percent after a year-on-year increase of 37 percent.
(Sources: U of I farmdocDAILY, Reuters, Nasdaq, Business Insider)