Corn futures hit the highest level in nearly a decade this week, and as prices dance around record highs, analysts warn there may be more risk than upside potential at current prices.
Even though the calendar still says April, a slow start to planting, combined with ongoing concerns about the Ukraine-Russia conflict’s impact on global grain supplies, was enough of a combination to send corn futures even higher to start the week. Chicago Board of Trade (CBOT) corn topped $8 per bushel on Monday, the highest price in nearly a decade.
With a mounting amount of global supply risk, and the verdict still out on the U.S. crop this year, Tommy Grisafi of Advance Trading says prices today more accurately reflect all that uncertainty than prices did even a month ago.
“We had a heck of a run in both 2022 corn and 2023 corn, it was mind boggling, and that goes for even 2024 and 2025 corn, for those really brave enough to look at them” says Grisafi, referring to the number of days new crop corn closed in the green.
April 21: CBOT December 2023 #corn futures mark their first daily decline since March 16 after reaching a contract high of $6.78 per bushel on Tuesday.
— Karen Braun (@kannbwx) April 21, 2022
However, Thursday's close of $6.64-1/2 is by far red Dec's highest ever for the date. Was right around $6 in 2012. pic.twitter.com/fZlJSjXmAJ
Just how impressive was corn’s price run? December 2022 corn futures saw more than a month straight of prices closing in the green. According to Karen Braun of Reuters, April 21 marked the first trading day Dec. 2023 corn closed lower on the day since March 16.
“We’ve had a heck of a run in prices,” say Grisafi. “Compared to where we were a few months ago, I’d say we’re a lot more fair and balanced. Could we go to $8.50 or $9? Yes. December $10 calls traded 24 cents the other day, and now there’s a December $15 call, for those who are involved in options. Same thing with beans, we have calls that are much higher strikes and puts that are much lower strikes.”
As of Friday, open interest sat at 18,000, and every 200 of that equates to a million bushels, which means 90 million bushels have already placed the bet that corn can trade to $10. And with December $15 calls now open, there are some who think corn could go even higher than $10.
While some traders are willing to place the bet, Grisafi says many growers have looked at locking in 2023 and 2024 futures prices, yet he estimates only about 25% have actually made the transaction.
With corn, soybeans, wheat and cotton at such high levels, historically speaking, as well as the uncertainty of Ukraine still at the forefront conversations, does it pose more risk or upside potential?
“I think the answer is risk. That uncertainty sort of spills off into not quite knowing your position themselves” says Darren Hudson, Combest Endowed Chair and agricultural economist with Texas Tech University. “There’s a lot of big players in in these markets, the ETFs and others, that are that are putting a lot of money in these markets. You put a million dollars into treasuries, nobody cares, you put a million dollars in wheat, and it tends to move the market. I think you, you have to be wary of certainly the short term price moves in thinking about the longer-term uncertainty in Ukraine, and it certainly plays into those grain markets and oil markets.”
Hudson says longer term, the entire market will be thinking about not only what happens next, but where those supplies will come from, and how the shuffling of commodities to backfill some of those situations will actually take place.
“When we pull that volume out of the market, if Ukraine doesn’t successfully get a full crop in, you have to start thinking about the marginal impacts of a drought on the High Plains or somewhere else, then those start to play a much bigger role when working on much thinner margins in terms of carryover,” says Hudson.
“With what’s happening in the world, we’ve never had this happen. There’s no one old enough, who remembers the last time Russia invaded Ukraine into having back-to-back problems in South America, drought in North Dakota, Montana, and Canada, and at the same time, phenomenal demand,” Grisafi adds. “There’s a lot of people in the world, there’s a lot of money in the world, and people were just starting to eat better. The day the war broke out, food insecurity started to be a subject.”
Grisafi says the U.S. is not going to run out of food, but affordability of food in the U.S. could continue to be an issue. These are all factors that will continue to be at play for outside traders who know very little about how corn or soybeans are producers. Grisafi says you have to remember no-one needs a Netflix subscription to survive, but everyone has to eat.
“And that’s where the markets are with corn around $7.50,” he says. “We could trade down to $5.50. We could trade up to $9.50. It could be interesting to look back in three months and see where we are.”
