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Top 3 Corn Input Prices and Their Link to Prices & A Change in the Weather Pattern

Update for December 1st, 2021

The cost to produce corn has been a major concern for U.S. producers. So, the long-term outlooks for input costs, beyond the 2022 season are being analyzed. Economists at FarmDoc Daily say they foresee the steady increase of farm input prices (possibly) reversing in coming years. Record “non-land” costs are a reality for the 2022 production year but historical data suggests that this could be a temporary situation. Additionally, much of the non-land price hikes can be linked to current supply-chain disruptions that are projected to correct over time, hopefully during the upcoming year. Other than land, fertilizer, seed and pesticides account for approximately 50% of the total cost of corn production. These inputs are reviewed individually in the graphs to follow. The dark line shows the costs associated with high-productive farmland in Illinois from the year 2000 on. The lighter green line represents the costs taken from the U.S. Department of Agriculture Economic Research Service (ERS). Data from the ERS includes costs dating back to 1975 and continue to the present. The dotted yellow line shows the price of corn in relation to the costs of each of the top crop inputs.

SEED- costs are illustrated in this first graph. A steady but slow price increase for seed lasted until the early 2000 when costs jumped quite significantly. That higher trend remained constant for several years but prices then began to decline in 2015, that trend lasted through 2020. Looking forward seed costs are expected to increase once again although projections for 2021 and 2022 have not been released. Notice the correlation between corn price and seed costs.

FERTILIZER costs as they relate to corn price are shown in the following graph. In general fertilizer tends to increase with time but also appears to be tied to corn prices and are directly related to the costs of the products used to produce the products like natural gas.

PESTICIDES saw a slow, steady increase in price from 1975 to 2003. The data from the ERS shows little change in the trend over the entire 46-year timespan. Findings are quite different when looking at pesticide costs found on high productivity farmland in Illinois. This is believed to be linked to the growing weed resistance tied the use of popular agriculture chemicals like glyphosate and others along with increasing usage of fungicides in corn production.

Commodity prices along with global markets have taken a hit since the announcement of the latest Covid variant, Omicron. Markets are very sensitive to news related to the pandemic and what it could mean for short-and-long range outlooks. Moderna CEO Stephane Bancel, does not believe that the current vaccine will be as effective against this latest variant as it has been with the previous viruses. Bancel told the Financial Times, “There is no world, I think where the effectiveness is the same level…we had with Delta. I think it’s going to be a material drop. I just don’t know how much because we need to wait for the data. But all scientists I’ve talked to…are like “this is not going to be good” ”. The uncertainty regarding Omicron has the markets wondering what the next several months will look like. Governments around the globe have instated travel bans from certain countries and fears of future lockdowns have again unsettled the market. Yesterday Biden stated that Covid lockdowns are “off the table” and that he does not expect that the U.S. will impose any additional travel restrictions other than the ones that began Monday. Biden also said that the Omicron variant is “cause for concern, not for panic”. Biden’s administration is working on a new plan for addressing the virus over the winter, “not with shutdowns and lockdowns, but with more widespread vaccinations, boosters, testing and more.”

U.S. corn exports continue to run behind last year’s pace by 17%. The USDA reported weekly net sales of 1.43 MMT with the majority headed to Mexico, Canada and Japan. This is an increase of 58% on the week and a 40% increase from the previous 4-week average. A small portion of the sales last week were switched from an unknown destination to China, but we still are waiting for the Chinese to make a sizable purchase of U.S. corn bushels. South America has had nearly ideal weather for the start of the growing season but there is still a long season ahead. Also keep in mind that the majority of Brazil’s second-season Safrinha crop (the largest of the corn crops) won’t be planted until February so ongoing cooperative weather remains very important.

Ethanol production continues to put up impressive numbers that averaged 1.079 million barrels per day last week. Ethanol stocks increased slightly but are still at the lowest seasonal level we have seen in 5 years, a reflection of the strong demand.

Shipments of U.S. soybeans this marketing year are 23% behind the pace of 2020. USDA inspections a week ago totaled 2.14 MMT compared to 2.43 MMT the previous week. Hurricane damage to ports along the Gulf are largely to blame for the major delays in September and October. Soybeans need some large purchases from China or the development of a weather concern in SAM to prevent prices from retesting lows in early to mid-November.

According to the current EURO weather model, several key growing regions in Brazil are forecast to receive as much as 3-5 inches of rain between now and December 9th, the GFS model is showing even higher rain totals during the period. Southern Brazil has missed out on most of the beneficial rainfall that areas to the north are receiving, if conditions persist production in this area may be reduced as a result.

AgroConsult projects record crops in Brazil that will increase both corn and soybean exports to record levels in 2022. AgroConsult has estimated the 2022 soybean yield at a record 144.3 MMT based on favorable weather and a 4.2% increase in acres and project 124 MMT in total corn production. The consultancy also estimates exports will also reach record levels and have projected 92.2 metric tons of soybean and 45.2 metric tons of corn for the 2021-22 marketing year. (Agricensus)

The December weather models are now showing a big change in the weather pattern here in the U.S. The EURO shows much warmer temps during the first half of the month than their earlier models had indicated. In fact it now show highs reaching 20-25 degrees above normal in many areas through the remainder of this week. The predicted departure from normal temps for tomorrow are shown in the following map. A slight cooling trend is expected over the weekend and into early next week but beyond that, temps are forecast to go right back up.

An extremely cold air that originated in Siberia is currently over Alaska and NW Canada. And WeatherTrends 360 expects that these temps are likely headed in our direction, “What goes up, usually comes down, so some of this cold weather is likely to invade the lower 48 for the latter half of December.” So enjoy the warmth while it lasts.

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