Bulls defend fresh support zone amid a profit-taking mood

Corn price has pulled back from the 9-year high of $8.20 per bushel  it hit at the beginning of the week with the market in a profit-taking mode. Even so, CBOT futures are still holding steady above $8.00. Prior to this week, the commodity had not reached that level since September 2012. As at the time of writing, it was at $8.06 per bushel.

Bullish drivers

Russia and Ukraine are key exporters of corn. As such, the war that has been ongoing since late February has yielded supply disruptions and subsequent surge in corn price. Drought in western US and soaring crude oil prices have further contributed to the rallying.

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In the past week, President Biden announced that his government will temporarily waiver the policy against selling higher ethanol blend gasoline during the summer period. The move is aimed at lowering gasoline prices, especially during summer when demand is usually high. The announcement, which is expected to increase ethanol demand has yielded further bullish momentum in the corn market. About a third of the corn grown in the US is used for the production of ethanol.

Besides, soaring fertilizer prices and shortages have further boosted corn price. Even before the Russia-Ukraine war began in late February, farmers were grappling with rising costs of farm inputs amid prolonged supply chain disruptions. However, the crisis in eastern Europe has worsened the situation. The input prices are now at a record high; having surged by 30% since the beginning of the year. Since 2020, the cost of nitrogen fertilizers has risen fourfold while that of potassium and phosphorous fertilizers has been up threefold.

Russia is the leading exporter of nitrogenous fertilizers in the world. Besides, it is the second-largest supplier of phosphorous and potassium fertilizers. Overall, Russia accounts for about 14% of global fertilizer exports. Following sanctions from the West, buyers and shipment companies have steered clear of the nation.

What’s more, natural gas is a crucial component in the fertilizer industry. As such, the soaring natural gas prices have contributed to the rising costs of fertilizers and corn price by extension. At the beginning of the week, US natural gas futures rose to the highest level since October 2008 at $8.19 per million British thermal units. Granted, it has since pulled back to $7.28 as at the time of writing.

As a result of the soaring costs of inputs, US farmers are shifting from corn to soybeans. The latter crop usually has a lower fertilizer usage. According to the US Department of Agriculture, this is the second season in record that soybean acreage is set to surpass that of corn.

The agency’s Prospective Plantings report indicates a decline of corn acreage by 3.9 million acres to 89.5 million acres. In comparison, the area under soybean is expected to increase by 3.8 million acres to 91 million acres. These figures have further boosted corn price as investors forecast a further decline in inventories for the 2022/2023 season.