Update for October 28th, 2021
Every year is stressful for farmers and this crop year has been no different and probably ranks in the top 10 for many. While spring weather cooperated for early planting the hot, dry weather that followed was worrisome. Now yields are in and the focus turns to the next growing season and already farmers are concerned about the availability of necessary inputs to support the 2022 crop. Right now, the 2022 crop scenario is scary. Not only are supplies of some key supplies critically low the price tag for them is outrageous. For example, Stone X Group reports that since September 10th the price for wholesale anhydrous ammonia has increased by 65% across the Midwest.
Michael Langemeier a Purdue University ag economist, says profitability next season is a tossup right now between corn and soybeans. “Looking at 2022 it’s about even. There really is no advantage towards corn or soybeans, despite the fact that nitrogen prices have increased substantially.” So, while here in the U.S. input prices are increasing while supplies are scarce Langemeier says we aren’t alone and the situation may be more serious in South America. “I think it could be actually worse in Brazil than it is in the United States. My understanding is Brazil imports most of their fertilizer needs-even more than we do.”
These concerns are spilling into the market. Higher costs and global logistical complications related to fertilizer and chemicals are causing a lot of debate about U.S. corn acres in 2022. Just how many less corn acres will farmers plant because of these factors and in addition how many fringe acres will finally return to wheat next year to capture higher prices? With high input prices will producers skimp on the products and applications they typically use to produce top yields and if that happens how much yield drag could we see? Even with these factors in place there is no guarantee that corn prices will respond accordingly. As one marketer put it, “corn has traded many more years under the cost-of-production than it has well above the cost-of-production”.
Everyone can agree that successfully marketing a crop is not an easy task. So many outside factors influence price movement that what seems clear based on what you see out your window, at times has little to do with price movement. Political issues have gotten in the way many times and given the unsettled relationship we have right now between the U.S. and China its nearly impossible to second-guess what their import plans are. We know that the SAM crop is off to a good start and has received plentiful precipitation and is on course to harvest a record crop. So, will the Chinese wait to buy the bulk of their soybean needs from SAM and the bare minimum from the U.S. just to get by or will they step in and purchase a meaningful amount? A lot of this will likely hinge on the current tensions between our nations regarding Taiwan. Any aggression from the Chinese would be considered a “Black Swan” event and would be significantly bearish to prices, and put them under immediate pressure.
Mexico’s agriculture minister Victor Villalobos met with U.S. Secretary of Agriculture Tom Vilsack in Iowa where he announced Mexico has decided to not limit imports of GMO corn from the U.S. Huge news from our #2 importer of U.S. corn following the announcement late last year that said they were going to ban the use of GMO corn for human consumption within 3 years. At that time, they said they would substitute imports with domestically produced corn by 2024. Villalobos explained that Mexico will not allow GMO corn to be produced domestically but would allow imports of the product from the U.S.
ADM has announced their plans during a press release Monday that they intend to use more than 50% of their ethanol production capacity to produce sustainable aviation fuels. ADM is partnering with Gevo to produce up to 500 million gallons of sustainable aviation fuel and plans to install Gevo technology in dry mill plants located in Columbus, NE; Cedar Rapids, IA; and Decatur, IL. Together these plants have a combined production capacity of 900 million gallons of ethanol per year, in whole ADM has a total production capacity of 1.6 billion gallons per year. ADM operates 7 plants across Nebraska, Iowa, Illinois and Minnesota. Sustainable aviation fuel production is a growing market for corn producers. ADM and Gevo expect to begin commercial production of this product sometime around 2025-2026.
Growing conditions in Brazil have improved remarkably from the severe drought conditions that greatly reduced last year’s corn yields. Recent rainfall has helped to replenish the depleted soil moisture and more rain is in the forecast. This has allowed for a quick planting season and the possibility of record yields.
Expected precipitation totals through November 4th.