In the world of commodities trading, it can often be difficult to predict what will happen next. This is certainly true for CME Corn prices, which have experienced several months of rangebound trading. However, in the final week of February, there was a significant drop in prices, with the commodity shedding around 50 cents per bushel. This sudden downturn has left many wondering what the future holds for CME Corn prices. Despite the recent drop, it's worth noting that prices are still elevated above the historic average. Furthermore, there are several factors that could impact the price of CME Corn in the coming months.
Grain from Ukraine
One of the key issues surrounding corn and other grain markets is the renewal of the protected grain corridor from Ukraine, which is currently due to end on March 18th. This issue has given rise to discussions regarding the length of the proposed extension, with negotiations still ongoing. While the current period of protected shipping spans 120 days, there are reports suggesting that Russia requested an extension of just 60 days which was subsequently rejected by Kyiv.
In addition to the issue of getting grain out of Ukraine, there is also the issue of supplying farmers with the necessary resources to enable them to grow an adequate crop in the upcoming season. Ukrainian farmers are currently experiencing a shortage of fertilizers, herbicides, pesticides. Reuters reports that Ukrainian farmers currently have less than 35% of the volume of herbicides and pesticides needed for the upcoming season, with the problem being most acute in the regions where conflict has been most prevalent.
Beyond missing these key supplies, Ukrainian farmers are also lacking an altogether more important resource: money. A recent estimate suggests that farmers require over $1 billion dollars to fund the the necessary work in the first half of this year to ensure a successful crop. It is also important to define what Ukraine might consider a successful crop in 2023. According to Reuters, “the 2022 grain harvest fell to around 54 million tonnes from a record 86 million in 2021” and currency unofficial estimates suggest that last year’s figure could again be reduced by 30-40% in 2023. In the absence of significant outside funding, it is unlikely that farmers will be able to afford their supplies even if they are accessible. This has the potential to severely impact the upcoming season's harvest, which could have far-reaching consequences for the grain markets and the wider agricultural industry.
Historic Drought in Argentina
Another major issue facing the global corn market is the present drought in Argentina, which is the third largest exporting nation of the commodity in the world. The drought has had a devastating impact on the country's crop production, causing widespread damage to corn and soybean harvests. This has resulted in a significant reduction in the country's GDP, which is expected to decline by 3% this year, according to Reuters.
The most recent estimate from the Rosario Grains Exchange suggests that the upcoming corn harvest will be just 35 million tonnes, revised down from 55 million tonnes in August. This significant reduction in corn production is likely to have a ripple effect throughout the global marketplace, leading to price increases and potential shortages of the commodity. Furthermore, the problems are not just confined to corn either. The estimated soybean harvest now stands at 27 million tonnes, down from 47 million in August, further exacerbating the impact of the drought on the country's agricultural industry. All of this compounds the rampant inflation that Argentina has experienced in recent years; ChAI’s Driver Detail chart below shows historic CME corn prices in white, while the depreciation of the Argentine Peso against the US Dollar over the past 5 years is shown in purple.
ChAI’s Driver Detail Chart, showing the relationship between the Argentine Peso and CME Corn prices over the past 5 years
Other Factors to Watch
War and weather will undoubtedly play a role in the development of corn prices in 2023, but there are also a number of other variables to watch. Many farmers, particularly in the US and Brazil, planted larger quantities of corn last year in order to take advantage of high prices with a bumper yield, so there may yet be some pressure eased on the supply side. Meanwhile, following an agreement signed with China in November 2022, Brazil looks poised to surpass the US to become the largest exporter of corn in the world. According to data reported by Reuters, US exports of corn to China were 30% below the average in January, while Brazil’s were more than double the volume of the previous 3 Januarys. Finally, the recent bailouts of major banks such as Silicon Valley Bank and Credit Suisse has spooked many investors away from volatile commodity markets at a time when the global economic environment was already weakened. If this trend continues beyond the short-term, this may have an impact on exchange-traded commodity prices such as corn.