TOP FARMER WEEKLY PERSPECTIVE 4/22/2022 BY BRYAN DOHERTY
Corn Prices Reflect Growing Reality
Corn futures have remained in a steady uptrend throughout March and April, reflecting the growing reality that the war in Ukraine will limit movement of corn as well as production in 2022. This is (and will have) major implications to the world, as Ukraine (in recent years) is a key exporter of corn.
In 2021, Ukraine’s corn production was near 44 million metric tons (mmt) and in 2020, near 37 mmt. As a net exporter of approximately 80% of its production, this means in recent years they have contributed more than a billion bushels annually to the world’s importing countries. When the war started at the end of February, there was hope for a speedy conclusion to the invasion, minimal disruptions to shipping, and more importantly, planting and growing crops. Spring was just around the corner. As time has passed, hopes for both have been severely diminished, with the now growing reality that Ukraine may not be able to plant and harvest half a normal crop. An emphasis on small grain production for food security may also limit corn acres. Futures prices have steadily moved upward, a reflection that the world will have to seek supplies elsewhere, ration inventory, or both. At the end of February, July corn futures were trading near $6.75. They are currently trading near $8.00, with new crop December futures adding $1.50, testing $8.50.
Recent large-scale corn purchases by China from the U.S. reflect the likelihood that Ukrainian supplies typically destined for China are being purchased to fill the void for summer supplies. The question that looms large is: what does 2022/2023 look like? Fertilizer prices have sky-rocketed this season, so the idea of the world “just planting more” could be limited. Additionally, weather that’s less than ideal will likely be factored into even higher prices. In the third week of April, it is still too early to suggest that spring weather will impact U.S. production. However, continued dry conditions in the southern Plains is a growing concern. Another week of cool and wet for others suggests a less-than-ideal start. As the year unfolds, it might be that corn prices are headed for a new paradigm. That is, a new level which requires a new way of thinking. Both end users and producers will need to adjust marketing decisions.
End users, if concerned that weather could create supply shortages, could book supplies now. This could prove valuable in the coming months. Once booked, consider buying puts or put strategies to manage the downside risk. Producers for the upcoming crop could sell cash, taking advantage of forward selling prices to a point where you feel comfortable. Protect prices of expected production you are not forward selling by using put options or put option strategies. Take time to plan out different scenarios and be prepared. Prices could be on the verge of topping, or just getting started in a bigger rally to prices that history has never seen. No one can say for sure. Still, you can act now to protect prices the market is presenting.
As always, be sure to visit with your advisor. Understand the risks and rewards of any strategy prior to entering into the positions.
If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.