After a year of significant corn price increases in 2021, driven by the combined effects of cheap money, drought in major growing regions in South America, and massive purchasing by China, the global reference price of corn on the CBOT saw a considerable decline in 2022. This was the period when the Fed began aggressively raising interest rates to combat surging inflation and aimed to bring the country's inflation rate back to an average of 2%; the USD, measured through the DXY, also saw a significant increase.

The July 2024 corn futures contract experienced a significant decline in the first two months of 2024, followed by a slight upward movement, trading sideways within the 440–460 cents per bushel range in April. Although there was a brief period where prices exceeded this range, they subsequently fell back. By the end of the session on May 31, prices settled at 446.2 cents per bushel, marking a nearly 10% decrease compared to the beginning of the year (closing price).

The price increase in April was driven by high import demand amid increasingly disrupted logistics due to infrastructure damage in Ukraine and a declining production outlook in Brazil before the main harvest, according to the FAO.

More specifically, the USDA reported that in April, Argentina's offer prices rose by $14 per ton to $204 per ton due to pest pressure, which reduced production forecasts as yields declined. Brazil's offer prices increased by $16 per ton to $215 per ton due to a reassessment of Brazil's safrinha harvest prospects, with a decrease in harvested area. U.S. prices also went up by $11 per ton to $204 per ton due to strong export sales data and uncertain planting weather in the U.S., while Ukraine's prices rose by $10 per ton to $187 per ton due to strong demand from the previous month, pushing prices higher.

Source: Barchart

In the week ending May 21, fund managers expanded their net short position on CBOT corn by approximately 50,000 contracts, bringing the total to 121,162 futures and options contracts. Nearly 80% of this move came from a return to net selling, the most significant amount in any week in nearly a year.

Source: Barchart

Currently, the Fed is hesitating on whether to cut interest rates, and maintaining higher rates for a longer period is generally unfavorable for the upward trend in asset prices. Many assessments suggest that the Fed may not cut interest rates in 2024 but instead keep them elevated in the 5.25%-5.5% range since July 2023, the highest level in about 23 years. Expectations for the number of Fed rate cuts have also decreased compared to earlier in the year.

According to a recent USDA report with estimates for the 2024/24 crop year, global corn production is forecasted to decline, primarily due to smaller crops in Argentina, Ukraine, and the U.S. Trade is also expected to decrease slightly, or there may be less supply from some exporters. Global corn consumption for animal feed is expected to increase, while usage outside of this purpose is projected to decline slightly. Therefore, with consumption slightly exceeding production, ending stocks are forecasted to decrease slightly, with larger stocks in China and the U.S. but lower stocks in Ukraine, India, and Brazil.

In this report, the USDA has revised down the forecast for the average U.S. farm price of corn for the 2023/2024 crop year (old crop) from $4.75 per bushel to $4.7 per bushel. The previous crop year, 2022/23, was estimated at $6.54 per bushel.

Source: Compiled