Cereal prices could be more volatile after surging in 2021

A record-breaking year for grain prices, US farmers aim to plant even more corn, wheat and soybeans than they did in 2021. But high fertilizer prices, forecasts for longer wilderness and the threat of China slowing down purchasing looms in the coming year. .

Row crops this year have reached multi-year highs amid rising global demand and inflation, and farmers are expected to increase their plantings in an attempt to capitalize on the momentum of 2021. Research firm IHS Markit forecast this month that farmers will plant about 230 million acres of soybeans, wheat and corn in 2022, 2 million acres more than last year’s record highs.

Analysts predict grain prices will decline in 2022, as global supply catches up with demand. Prices have fallen since peaking in May, but remain at levels not seen in eight years. Chicago Board of Trade corn futures have been on the rise since the start of the year 27% and wheat futures are up 25%. Soybeans, up nearly 5% over the year, entered 2021 at their highest level since 2014.

Continuing vigorous planting is considered to limit the amount of higher grain that can increase. “This crop year, we are witnessing a planned replenishment of stocks. This would suggest that there is a price cap, ”said Jake Hanley, senior portfolio strategist at Teucrium Trading LLC.

Several factors could increase price volatility in 2022. Analysts and investors have said geopolitics may be the most important factor, with tensions between the United States and China and the build-up of Russian troops along its path. border with Ukraine threatening to add uncertainty to world trade.

If Russia attacks Ukraine, as it did in 2014 when it annexed the Crimean Peninsula, world wheat prices could jump, Hanley said. Prices in 2014 increased 75% from February to March in response to this conflict.

Russia is one of the world’s largest wheat exporters. The U.S. Department of Agriculture projects it will ship 36 million metric tonnes of grain in MY 2021/22, which begins in September, as farmers harvest and sell the spring and summer crops. summer. Ukraine is also a major exporter, expected to ship 24.2 million tonnes.

China’s appetite for grains is also at issue. The country’s gross domestic product is expected to slow its growth in 2022, and a real estate bubble threatens to burst. China, the world’s largest buyer of grain exports, is expected to import more than 135 million metric tonnes of corn, wheat and soybeans from around the world in MY 2021/22, according to the USDA.

“I think the demand for commodities in China is directly related to their GDP,” said Michael Zuzolo, president of Global Commodity Analytics & Consulting. Economic shocks could hurt the buying appetite of China’s growing middle class, he added.

The year-end expiration of a Trump-era trade deal with China, signed in 2020, comes as US-China trade relations remain frigid. China has failed to meet the agricultural procurement targets set in the agreement, according to the Peterson Institute for International Economics. The United States said in October it would maintain existing tariffs on Chinese products.

Other factors may limit the ability of the United States to meet global demand. One is a global supply chain which, along with inflation, increases the cost of the materials and equipment that farmers need. Deere & Cie.

in November said he expects strong sales and higher prices for large farm equipment next year.

The effect of the supply chain bottleneck is particularly felt with fertilizer costs, which have tripled compared to the same period last year. Higher fertilizer prices could reduce use, reducing crop production, Fitch Solutions in a note released earlier this month.

Strong demand and limited capacity in freight markets are also expected to persist over the next year, offering little hope for lower input costs for farmers before the next planting season.

On top of all this, the weather conditions – which unfamiliar farmers face every year – can present significant challenges for growing healthy crops. A La Niña climate is currently in place, with the National Oceanic and Atmospheric Administration’s Climate Prediction Center predicting a 60% chance this month that the climate will stay in place until spring.

NOAA predicts the system will likely increase precipitation in major Corn Belt states like Indiana, Illinois and Missouri, while maintaining hot and dry conditions in the southern states. Climatic variations can affect crop yields and in recent years have contributed to sharp price fluctuations.

Write to Kirk Maltais at [email protected]

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