Corn Prices in the United States are Expected to Remain Stable as the Global Demand Recovers in 2021

The US corn balance sheet had a rocky 2020, with prices ultimately reaching a six-year high at the end of the year. However, several reasons predict that 2021 will support US corn essentials and maintain prices high. While significant reductions in output predictions aided morale, improved prices for US corn have primarily been driven by demand, and this trend is projected to continue through 2021.

On December 31, being the most active March corn futures contract on the Chicago Board of Trade reached a six-year high of USD 4.80/bushel (bu), up more than 40 percent since August. In the meantime, according to the US Department of Agriculture, the season-average farm price for US corn has risen 30 percent from August to USD 4/bushel in December.

Exceptional strong demand from China continued to be the primary driver of high corn prices in the United States. Because of the substantial increase in the Chinese market, export sales of US corn increased 162 percent from 2019 year over year in 2020-2021. According to the USDA, China is expected to import 16.5 million metric tonnes of corn in 2020-2021, up from 7.6 million metric tonnes in 2019-2020. Even though Chinese corn sales slowed near the end of 2020 due to the domestic harvest, strong jumps in the country's corn futures prices indicate that import demand may return in 2021.

China's corn purchases are anticipated to fuel the growth of US corn prices since markets expect the US to provide the majority of China's growing grain demand. China has already committed to over 11.6 million metric tonnes of US grain for delivery in 2020-2021 as of December 16, up from merely 60,000 metric tonnes the previous year.

Additional factors anticipated maintaining robust demand for US corn from China until 2021 include the recovery of China's hog herd, which Asian Swine Fever damaged, and concern about limited grain stockpiles in China.

Grain supplies from key suppliers such as the United States, the European Union, and Ukraine are shrinking, and Argentina has suspended corn exports until March 2021, keeping corn prices firm beyond 2021. Corn production forecasts for 2020-2021 (September-August) have dropped 9.3 percent in the last six months to 14.5 billion bushels (368.49 million metric tonnes), with year-end stock predictions nearly halving to 1.7 billion bushels, a seven-year low (43.23 million metric tonnes).

As per the USDA, worldwide corn production estimates for 2020-2021 have decreased by 3.5 percent since May, to 1.143 billion metric tonnes in December, while global inventories have fallen by over 15 percent to 288.96 million metric tonnes.

The output estimates have been hampered by dry weather in Ukraine, the United States, and portions of Europe. A significant corn exporter, Argentina has put a moratorium on grain exports until March 1, 2021, to secure enough local supply throughout the summer months, providing corn prices with a final raise in 2020.

Moving forward, a healthy soybean market, which saw a price rebound in 2020, will compete with US corn acres in the 2021-2022 planting season. Corn and soybeans are grown virtually simultaneously in the United States, competing for land. Several market players believe that in the struggle for acres in 2021-2022, soybeans might triumph, providing additional corn prices.

COVID-19 vaccinations are proven to improve the chances of a worldwide economic recovery effectively. The prospect of increased trade has helped improve the outlook in the energy sector, including corn through the ethanol market. Ethanol continues to be a primary driver of US corn production, accounting for roughly 40 percent of all corn produced in the country.

COVID-19 lockdowns in the United States halted ethanol demand in the country, putting ethanol factories out of business. As a result, a successful COVID-19 vaccination drive raises prospects for a quick rebound in ethanol demand, and hence corn is used for ethanol. According to the December WASDE report, corn utilisation for ethanol in 2020-2021 will be 5.05 billion bushels, up from 4.85 million bushels in 2019-2020.

Experts said that the demand for industrial ethanol in the United States increased in 2020 due to a jump for ethanol-based hand sanitisers during the pandemic. The demand is expected to continue until Quarter 3 of 2021, depending on the vaccine's status.

The demand prognosis for US Dried Distillers Grain with Solubles (DDGS) is also projected to be supported through 2021, owing to continuous purchases and probably restricted soymeal supply from Argentina. Global feed demand in 2020 may not be as flexible as fuel demand, but record-buying from China and Southeast Asia has increased US DDGS exports.

Fears about decreased soybean crushing in Argentina, and hence lower soymeal output, may limit global supplies, resulting in greater demand for replacements such as DDGS and feed grains.

Weak container logistics, particularly in the Chicago-area container export zone, might hinder US DDGS shipments. DDGS production in the United States has set new highs since March 2020, despite weak ethanol crush margins in the fourth quarter. Firming feedstock corn prices put pressure on ethanol crush margins, which are the lowest since May 2020. While production has not yet been impacted, traders are unsure how long facilities can operate at the present margins.