Why $18 Corn, $30 Soybeans and $42 Wheat Prices are Possible, But Not Likely

Social media started buzzing this weekend after a marketing analyst made a comment about where prices could go in 2023. The analyst painted a scenario and stated corn prices could hit $18 to $19 per bushel, soybeans $30 and wheat $42 to $45 per bushel in the year 2023.

While the price forecasts may seem far-fetched, other industry analysts say anything is possible, and the 2020 price action on crude oil is proof of that.

“I refuse to say something is not possible when it comes to the price of a commodity,” says Brian Splitt of AgMarket.Net. “2020 saw the price of crude oil trade at -$40 per barrel, and I have been humbled by the market numerous times. So, to say we can’t see those prices is foolish. Whether it is likely is another question.”

“The odds of $18 corn are about the same as the odds that we’ll ever see crude oil trade to -$40; wait a minute. That did happen back in April,” adds Arlan Suderman of StoneX Group. “So, I’d be reluctant to say that anything can’t happen in this money rich environment, where computer trading dominates, backed by billions of dollars of fund money. Is it likely? Probably not. But I wouldn’t rule it out.”

Factors to Fuel High Prices

While analysts say it’s possible, yet not likely, there are some factors fueling the market today. It’s not just the supply and demand scenario, but also the possibility of inflation.  

“It seems like it would take a major jolt of inflation to trigger a rally anywhere near those levels,” says Brian Basting of Advance Trading. “There is plenty of talk about the possibility of inflation at the moment, although the Fed seems committed to keeping that under control. Widespread world crop shortages would also likely have to be seen.”

It’s the inflation piece of the puzzle that seems to be the biggest concern. While supplies are tight and demand is strong, Suderman says fiscal policy would be a major factor to create such prices.

“It’s easy for us to understand the fundamentals, but it’s more difficult for most people to grasp the impact of more than a decade of easy money policy from the Federal Reserve,” says Suderman. “In fact, central banks around the world are following similar policies. Their policies, along with runaway fiscal spending in the United States and in other major economies, raises the risks of hyper-inflation. The United States is already managing the problem by monetizing its debt via the Fed, as it prints money to buy its own debt. Other countries are expected to do the same. Ultimately, the risk is best illustrated by what we currently see in Argentina, where it’s struggling to contain runaway inflation, that’s stifling production in its Ag sector due to high taxes.”

The Hype and Reality of Hyperinflation

The talk of inflation, and specifically hyperinflation, could create a scenario of higher prices in more than just commodities. And Basting says if you look back at history, that also means a recession.

“If history is any indication, the economy would likely struggle through some type of recession,” says Basting. “For example, when inflation peaked in 1980 the U.S. experienced negative GDP growth and the start of a recession. The unemployment rate continued to rise, reaching an annual peak of 10.8% in 1982, although inflation was declining by then. Also, GDP contracted by 1.8% in 1982 as the recession continued before concluding in early 1983.”

Splitt says the fallout from an event like hyperinflation could be destructive and detrimental in the long-term. However, he says higher prices are possible even without hyperinflation.

“The thing about hyperinflation is it requires the word ‘hyper.’ This means that inflation is happening so fast that prices of goods and services when you go to bed at night can literally be double what they were when you wake up in the morning,” says Splitt. “So, I don’t think the prices mentioned above require hyper-inflation. Roughly double current values for soybeans wouldn’t, in my mind, be considered hyper unless it happened tomorrow. But, as far as the overall economy, your savings is gone unless you converted it to something else, like a foreign currency or a cryptocurrency. Since the value of the currency is so volatile relative to the cost of goods and services, bartering would be how the average person stabilizes this relationship, goods and/or services for goods and/or services. Good luck getting a loan.”

Splitt says Zimbabwe may be the best example of recent inflation and the impact it could have on prices, because it’s such an extreme example. He says government land reforms redistributed farmland, which then led to a large reduction in food production.

“In order to fight inflation, they implemented price controls, which actually fueled inflation by keeping goods affordable,” he says. “Keeping goods affordable sounds nice until you run out because prices didn’t do their job of rationing, and the cost of production increases faster than the price of the product.”

He says the other piece that was already a factor during that time in Zimbabwe was high national debt. So, the reduction in ag production and a collapse in lending caused the economy to see sharp contraction. It also created turmoil with consumers’ trust in the government.

“The obvious theme here is massive amounts of money printing and how one cause begets another feeding on itself which becomes a vicious cycle,” says Splitt. “In the case of Zimbabwe, it evolved into hyper-inflation.”

Suderman says in an inflation type setting, farmers have to remember that even with higher prices, there will be a cost to pay.

“Farmers should keep in mind that this inflation cycle will not just raise prices for what they produce, but it will also dramatically impact the price of inputs necessary in that production,” says Suderman. “Risk management plans need to focus on both the output and input sides of production.”

Higher Price Highs Yet to Come?

While $18 corn may seem unattainable, analysts say the bull market still isn’t over. And as prices climb, even if $30 soybeans don’t come to fruition, some say the market could still see higher highs in the coming years.

“It is possible that we could set new record highs over the next couple of years – perhaps well above levels that we now see as rational,” says Suderman. “Fundamentally, soybean stocks are very tight, and could get tighter if China is able to manage its hog disease problem. That’s a more significant ‘if’ today than it was a month ago. Corn stocks could get to that level if we have a short Safrinha crop in Brazil and/or a short Midwest crop this summer.”

“At the moment it looks as though it might require several growing seasons to get production to a level that would satisfy current demand,” adds Splitt. “Based on USDA’s February Outlook Forum, it would require 2021 domestic production to strongly outperform on both acreage and yield expectations. Otherwise, we can’t do it alone without a strong showing from South America next year.”

Splitt says assuming the inflation conversation doesn’t turn into reality, he thinks it will take until fall of 2022 before world buyers feel comfortable about supplies again. It’s that runway still in question and one that nobody can pin down.  

“It's impossible to say at this point how long this inflation period lasts,” says Suderman. “A resurgence of Covid-19 due to a more lethal mutation could hit the pause button for an extended period of time. Otherwise, we could see this cycle last for a year or two, or much longer if the Fed and Congress mismanage it. Never before have they faced the current scenario in U.S. history, so policymakers are trying to figure it out as they go, following academic theory that’s never been tested in our economy before.”

 Lessons Learned

While wild price forecasts may continue to surface, there’s no clear answer as to how high these markets will go. That’s why Advance Trading suggests farmers don’t ignore the marketing tools available today, and possible profits they can pencil in with current prices.

“It’s impossible to say, there are simply too many moving pieces in the world economy at the moment,” says Basting. “What we can say by looking at commodity price history is that price change happens and can be very fast. Looking back on this time of history, we will be able to determine what happened. But markets do not afford producers that type of luxury. That’s why we strongly advise that producers utilize the various marketing tools available to defend their balance sheet.”