Global Corn Price in October 2023 Rises Due to Lower Production Forecasts

Published Oct 19, 2023

Corn prices for the December contract surged to USD 493/bushel as of October 18, 2023, marking a 1% MoM increase. This upward trend in prices has been consistent since Aug-23. The news about the lower US corn production forecast made the price go up. Reduced corn production in the US, driven by unfavorable weather conditions, particularly an extended drought, contributed to the price hike. In Brazil, farmers shifted to more profitable crops such as soybeans, potentially impacting the global corn supply. Meanwhile, Argentina anticipates a substantial corn production rebound due to improved weather conditions. The global corn market remains sensitive to production changes in major producing countries such as the US, Brazil, and Argentina. As these nations navigate challenges and opportunities within their agricultural sectors, price fluctuations will continue to be influenced by developments in the corn-producing markets.

The price of corn for the December contract has surged to USD 493 per bushel as of October 18, 2023, marking a 1% month-on-month (MoM) increase. This upward trend in prices has been consistent since Aug-23. The announcement of the United States Department of Agriculture (USDA) about the lower United States (US) corn production forecast has caused the price to rise.

Source: ICE

In the USDA's October report, reduced corn production in the US has driven several corn contracts to multi-week highs. Parallel with the Challenging Season Ahead: Unfavorable Weather Impacts US Corn and Sorghum Production Opinion, the outlook for US corn in October 2023/24 anticipates diminished supplies, decreased feed use, and a production drop. Corn production is forecasted at 15.1 billion bushels, down by 0.5% compared to Sep-23, mainly due to an extended drought in the US affecting corn yields.

Changes in corn estimates have been widespread throughout the Midwest due to varying growing conditions. Many regions experienced severe rainfall deficits in June, significant surpluses in July, and more shortfalls in August for much of the Central Corn Belt. With declining production, corn-ending stocks for 2023/24 are forecasted to be reduced.

Brazil Reduces Corn Planting Area

Notably, it's not only the US with a lower production forecast, but Brazil is also expected to reduce its corn production. Farmers in Brazil are reallocating their fields away from corn planting for the 2023/24 cycle due to more favorable prices soybeans offer. Despite Brazil overtaking the US as the world's leading corn exporter in 2023, the reduction of corn plantation area could potentially impact the global corn supply. According to Conab Brazil, corn plantation areas are projected to shrink to 21.2 million hectares (ha), 5% year-on-year (YoY) down from the previous year's 22.3 million ha. Brazilian corn production is anticipated to decrease to 119.4 million metric tons (mmt), a decrease of 5% YoY.

While the USDA has maintained its 2023/24 Brazilian corn production estimate at 129 mmt, this still represents a 7% YoY drop from the record 137 mmt in MY 2022/23. However, it's important to note that the Brazilian second crop will not be planted until early 2024 after soybean harvesting, allowing sufficient time for adjustments based on the global corn developments.

Optimism and Uncertainties in Argentina

In the 2023/24 harvest, Argentina is set for a substantial rebound in corn production following three years of adverse La Niña effects. This optimism is primarily due to the influence of El Niño, which is expected to bring more favorable weather conditions, including increased rainfall.

The corn crop area is anticipated to expand by 3% YoY, covering 7.9 million ha, with an anticipated production increase of 62% YoY, reaching 55.69 mmt. However, Argentine farmers may prioritize early yields to avoid competition with Brazil's second crop, typically harvested from June to August.

Nonetheless, the Argentine presidential elections are scheduled for October 22, 2023. Potential changes in economic policies, export taxes, and differential exchange rates for the agricultural sector may significantly affect the corn industry. It is worth noting that from Jul-23 to Aug-23, the government set a special exchange rate for Argentine corn exports in an effort to increase corn sales.

Outlook

The rise in corn prices can be attributed to reduced production estimates, primarily influenced by fluctuating weather conditions. Prolonged droughts in the US have hampered corn yields. Meanwhile, a decrease in corn planting areas and production in Brazil may tighten global corn supplies, potentially leading to higher prices. Argentina's efforts to increase corn production could help stabilize prices. However, the upcoming elections introduce uncertainties that may affect export policies and exchange rates.

The global corn market remains sensitive to production changes in major producing countries such as the US, Brazil, and Argentina. As these nations navigate challenges and opportunities within their agricultural sectors, price fluctuations will continue to be influenced by developments in the corn-producing markets.