Column: Grain traders eye U.S. crops, China and biofuels to headline 2022

Source: By Karen Braun, Reuters • Posted: Wednesday, December 15, 2021

FORT COLLINS, Colo., Dec 14 (Reuters) – Grain and oilseed markets in 2021 proved just as exciting as in 2020 with prices hitting multiyear highs on shrinking stockpiles. Whether those prices sustain or relax in 2022 will be partially guided by some of the industry mainstays.

Unforeseeable events pop up every year, but market participants over the next 12 months will likely remain focused on top importer China as well as the increasing demand for renewable fuels and the impact on agriculture. The always-crucial U.S. growing season could be a shorter-term aspect.

Those are not dissimilar to the leading topics from a year ago, but global prices are stronger now. Chicago corn, soybean and wheat futures in 2021 all hit their highest levels since 2012-13.

Currently, most-active corn futures are trading about 35% above the year-ago levels, soybeans 4% above, and wheat 30% above. All three ended 2020 on their yearly highs, but prices have eased off the 2021 tops, soybeans by the most at around 24%.

Other topics will be of top importance into 2022, especially escalating inflation. Global shipping costs back in October reached the highest levels since 2008, and although they have fallen significantly since then, they are at 12-year highs for the date.

Relative to demand, global wheat supplies by mid-2022 are projected at all-time lows, so production rebounds for Russia, the United States and Canada will be crucial to rebuild inventory.

U.S. ACRES

U.S. farmers’ 2022 plantings will be a significant factor on prices because the range of acres currently in discussion could easily be the difference between the safe building of supplies and another year of tightness and uncertainty.

There are concerns that U.S. corn acres could plunge on the year due to soaring fertilizer prices, though there are a handful of analysts who see unchanged to higher corn acres in 2022. That sets up a possible surprise in the often-unpredictable intentions report on March 31.

Insurance guarantees will also play a role in the decisions. Those are set by the average price of new-crop futures during February for corn, soybeans and spring wheat. Corn futures do not usually suffer significant losses from mid-December to February, but it is possible if the January reports from the U.S. Department of Agriculture are bearish.

U.S. corn and soybeans’ battle with other acres will be heightened in 2022 by competitors’ strong profitability and a seemingly smaller pool of total acres than in past years. Wheat, cotton and specialty crops like peas and edible beans are all poised to possibly edge out some corn and beans.

CHINA

China has long been in the driver’s seat in the soybean market, but it is now central in corn since it became the top importer of the yellow grain last year. However, future demand remains unclear.

China in 2020-21 imported nearly 30 million tonnes of corn, almost four times the previous high. Most industry estimates have that volume falling this year, but by varying degrees. China’s agriculture ministry pegs 2021-22 imports at 20 million tonnes, though USDA is more optimistic at 26 million.

However, Chinese corn prices are currently at slightly higher levels than this date a year ago, and that was following a substantial rally throughout 2020. That is also despite China harvesting a record corn crop this fall and ongoing concerns that feed demand might not match expectations.

It has been seven months since China last made large U.S. corn purchases. If Chinese prices remain high into 2022, that should keep imports cheaper and potentially spur some more sales, especially if U.S. prices were to ease at any point in the next several months.

China is a main player in the livestock industry as U.S. pork and product exports to the Asian country hit records in 2020 following the 2018 African swine fever outbreak. China’s U.S. pork interest has eased in 2021, but it has emerged as a top buyer of U.S. beef.

The 2020 surge in U.S. agriculture exports to China coincided with the signing of the Phase One trade deal that January, though actual demand, not the terms of the agreement, seems to be Beijing’s most likely motive. However, China fell short of the 2020 and 2021 U.S. purchasing targets.

The deal as signed nearly two years ago remains in place, though the Biden administration has offered very few clues as to its forward plans regarding the Trump-era agreement.

BIOFUELS AND RENEWABLES

The push for reducing global carbon emissions has increased U.S. interest for renewable fuels, leading to considerable investment. Several projects to build new plants or convert existing petroleum refineries into renewable ones are already under way.

This has been largely bullish for soybean oil prices, which in June reached all-time highs in Chicago. Prices have come well off those tops but remain historically elevated, though steep feedstock costs in general have limited some of this year’s expansion in the renewable space.

According to the U.S. Energy Information Administration, renewable diesel is different than biodiesel in that the latter can be blended with diesel fuel at rates between 2% and 20%. But renewable diesel can be blended at any rate, making it more attractive to meet expanding renewable fuel goals.

The EIA said earlier this year that if all current projects come online as intended, renewable diesel production capacity by the end of 2024 would increase more than eightfold from last year to 330,000 barrels per day. But that would still make up only 5% of total U.S. diesel production capacity.

Some analysts believe that this effort will greatly increase the need for U.S. soybean plantings, potentially far past any previous highs, but it is too early to have impacts for 2022. For corn acres, the ethanol recovery is a positive factor.

U.S. corn-based ethanol production has recently gotten back on track after being heavily limited for more than a year by the pandemic. Weekly volumes have exceeded 1 million barrels per day since early October as profitability margins remain at abnormally high levels for the date.

The opinions expressed here are those of the author, a market analyst for Reuters.

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