Corn has led the rally among agricultural crops, rising more than 30% in 2021 to touch its highest prices in nearly eight years, outpacing the rally for wheat and soybeans, which also reached their highest prices since 2013.
The run-up for corn and soybeans, however, may not be over.
Among the three commodities, “corn is the driver…and China is the driver for corn,” says Peter Meyer, head of grain and oilseed analytics at S&P Global Platts.
In April, officials at the U.S. Department of Agriculture in Beijing forecast China’s corn imports for the 2020-21 marketing year at a record 28 million metric tons, with “continued feed demand and a supply deficit” contributing to the estimate increase. That was a sharp increase from October, when the USDA forecasted China’s global corn imports for the marketing year at just seven million metric tons.
“Six months ago, barely anyone paid attention to China’s corn imports, but then they came into the U.S. export market in a large way,” says Meyer.
The strong demand is key to why the most-active July corn contract CN21, -0.04% C00, -0.04% settled at $6.57½ a bushel in Chicago on April 26, the highest finish since June 2013, according to Dow Jones Market Data.
On April 26, wheat and soybeans also reached their highest settlements since 2013, up over 15% year to date, with July wheat WN21, +0.52% W00, +0.52% at $7.39½ and July soybeans SN21, -0.36% S00, -0.36% at $15.39¼ a bushel.
China’s global wheat imports have essentially doubled from 5.4 million metric tons last year to a forecasted 10.5 million metric tons for the marketing year ending May 31, says Meyer.
Its global soybean purchases have a smaller yearly rise, at 1.5%, to 100 million metric tons for the marketing year. U.S. exporters are expected to fulfill 35% of China’s total soybean needs compared with 17% last year, driven partly by “eased trade tensions,” Meyer says.
An increase in protein consumption as restaurants reopen is a “global phenomenon,” and the impact is far greater in China, which leads the world in recovery, says Darwei Kung, head of commodities and portfolio manager at DWS Group.
China is purchasing wheat, ethanol, and other commodities in “fairly significant quantities,” Kung says. With soybean inventories somewhat depleted and prices elevated, China is still importing aggressively, he says. Corn, wheat, and soybean prices can “absolutely run higher,” he adds.
Weather has also been a key factor, given the “potential adverse effects in crop development” in South America, particularly Brazil, where it has been hot and dry, says Oliver Sloup, vice president of Blue Line Futures.
With the U.S. planting season ramping up, there are added concerns, he says. Slow plantings in the Midwest due to cold weather have supported prices.
Meanwhile, trading positions held by hedge funds and commercial traders could be a “powder keg” for corn, Sloup says.
Funds have defended a near-record net long position in corn for several months, he says. Long positions are essentially bets that prices for the asset will rise. A few months ago, the CME increased those position limits, giving “funds powder to add to their net long position,” which could be bullish for prices.
Meanwhile, commercial traders, which include producers, are near-record net short, so a short squeeze is adding fuel to the corn rally, Sloup says. As funds buy, they are squeezing shorts out of positions, and this “could take prices much higher than fair value.”
There has been talk about new record highs for corn and soybeans, and “it seems halfway realistic this year,” Sloup says, but “I’m not going to be holding my breath.”
Record settlements were at $8.38¾ in August 2012 for corn and $17.68¼ in September 2012 for soybeans.