3 Reasons Corn Prices Shot Past $7

Up. Up. Up. May 2021 corn futures topped $7 per bushel on April 27. A look at the corn price chart shows a dramatic and consistent climb higher. You can find multi-year highs in many ag commodities. 

“These are one of those times that come along generally once every 30 years or so when the markets just really take off,” says Arlan Suderman, StoneX chief commodities economist. “And we just went through this about 12 years ago or so.”

How high will prices go? How long will the high prices last? What is behind this rally? Here are some of the factors at play: 

1.    Weather Problems in Brazil

Suderman says the southern 60% of the Brazilian Safrinha Corn Belt, which accounts for 75% to 80% of the country’s corn production, has been dry during the past two months.

As such, the Safrinha corn remains the largest concern in Brazil, adds Kevin McNew, chief economist for Farmer's Business Network. 

“Showers are expected infrequently, and it still looks like the monsoon season will end before the end of April,” he says. “The potential rainfall is forecast to be light and somewhat poorly distributed. The likely increase in crop stress is leading some analysts to reduce production forecasts and support this new leg higher for U.S. ag prices.”  

Read More: Weather Concerns Continue To Lift Markets

2.    Steady Planting Progress

U.S. farmers are making steady progress getting the 2021 crop in the ground. The latest estimates from USDA show soybean planting progress jumped from 3% to 8% in the past week, which is trending 3% ahead of the five-year average. 

USDA estimates 17% of the corn crop is now planted, which is up 9% from last week but still 3% behind the five-year average.

“Temperatures across the Corn Belt has warmed up drastically,” says Joe Vaclavik, president of Standard Grain. “Farmers in many areas will be planting today and this week; planting progress should accelerate pretty quickly.”

Listen to Vaclavik's 4/27/21 podcast.

3.    Higher-than-Expected Demand

China continues to be a strong customer for U.S. grain, Suderman says. How long will China's demand stay with us?

“Right now, that's looking pretty steady, like it's going to be strong into the fall at least,” he says. “So, the demand factor is going to be there.”

Vaclavik says last week’s corn shipments were strong, with USDA reporting 1.95 million metric tons of corn were inspected for export, up from 1.559 million metric tons the prior week. 

“U.S. exporters have now shipped 61% of USDA’s full-year target for corn, and they have shipped 89% of USDA’s full-year target for soybeans [for the marketing year that ends on Aug. 31],” he says. 

As such, the U.S. corn stocks-to-use ratio is at 9.2%. Naomi Blohm, senior market advisor for Total Farm Marketing, says there have only been five years when the final stocks-to-use ratio was tighter than it is now.

$7.00 #corn this morning on May 2021 futures. Prices not seen by American farmers since 2013.
The current stocks-to-use ratio is at 9.2%.
There were only 5 years where the FINAL s/u ratio was tighter than it is now...and it is only APRIL. ???? pic.twitter.com/eIOETAfDV8 — Naomi Blohm (@naomiblohm) April 27, 2021

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What do these market moves mean for the long term? 

“There should be no question we have moved into the realm of demand destruction, and we should not lose sight of the fact once that occurs, it may not return quickly, if ever,” says Dan Hueber, general manager of the Hueber Report. “Stick with disciplined, well-thought-out marketing plans based on sound business principles and try not to get caught up in the hype.”

Hueber likens it to the old baseball saying: “Ballgames with lots of home runs are exciting to watch, but over time, singles will most often win the series.”

Read More: Will this have been the great commodity bull of 2020/21?