- Natural gas is very expensive at present.
- This could weaken global fertilizer production.
- Grains are already rallying in response.
Nixal’s Forecast
Our new crop average price forecast for Chicago Corn (2021/22, Sep/Oct) remains unchanged in range of 4.5 to 5 USD/bu. The average price since the new crop start has run at 5.2 USD/bu.
Market Commentary
Corn in Chicago rallied almost 3% last week but it was Chicago Wheat and European grains that rallied around 5% on the back of a smaller US crop, a weaker Euro and on risks of a fertilizer shortage in Europe due to expensive Natural gas. Euronext corn made 6% weekly gains while wheat made 4% weekly gains.
The energy crunch in Europe is impacting grains as several fertilizer plants have shut down, unable to keep up with record high natural gas prices. Not only that, but China is planning to ban phosphate and urea exports through June 2022 to secure local supply. This will increase the cost of production for farmers, lowering yields and pushing farmers to migrate from corn and wheat to less nitrogen intensive plants, such as oilseeds.
The USDA’s quarterly stock report was neutral for corn, with stocks as of the 1st September looking higher than expected. 2020/21 area and yields were cut, however, offsetting these higher stocks.
The 2020/21 area was lowered to 90.7m acres planted and 82.3m acres harvested. Yields dropped to 171.4 bpa. This all resulted in production at 14.1b bushels.
Corn stocks as of the 1st September were reported at 1.24b bu, well below stocks as of the 1st September 2020, although the expectation was for even lower stocks of 1.55b bu.
EU Corn rallied as well, not only due to the reasons mentioned above, but because delays in the Ukraine harvest transferring to export commitments spurred a rally last Friday. Ukrainian Corn is only 7% harvested, down 11% year-on-year.
The US’ corn condition was stable at 59% good-to-excellent, down 2% year-on-year. Harvesting is 18% complete, above last year and above the five-year average.
Corn planting in Argentina is 16.8% completed.
Wheat rallied as the USDA lowered wheat production (1.65b bu vs. last year’s 1.83b bu). Area was higher than last year, but yields were just 44,3. bpa vs. 49.7 bpa last year.
There was additional support with healthy tender activity from African countries.
Russian wheat production was confirmed last week at 74.2m tonnes by the Agricultural Minister, erasing fears of a lower crop.
The Natural Gas crisis can turn into a fertilizer crisis, mostly for European and South American crops, so we should have a risk premium in the market until there’s some clarity on fertilizer stocks and supply. We should also have some downward pressure on corn as harvesting activities continue in the northern hemisphere.
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