PEORIA, Ill. — Already saddled with astronomical fertilizer and fuel prices, producers can add the Omicron virus variant to their list of concerns regarding profitability in 2022. This is according to Todd Hultman, lead market analyst for DTN, who presented a 2022 price outlook seminar for farmers attending the 40th Greater Peoria Farm Show held Nov. 30- Dec. 2 at the Peoria Civic Center. 

“Markets being markets, no matter what you’re prepared for there is going to be a surprise. Since we got the news of this Omicron variant, it has been upsetting markets. Corn was down by 13, I believe, the last time I looked this morning. Beans and wheat are getting hit too,” Hultman said on the show’s first day. In his presentation, the analyst called the coronavirus the “economic lynchpin” that will determine market flow in the coming year. 

“As tired as I am of talking about it, you can’t get around it. Everything comes back to (the virus): supply chain problems, high shipping costs, expensive fertilizer, natural gas prices,” said Hultman. “Another challenge is Brazil. Brazil continues to expand their corn and soybean acres, and this is the 17th straight year they will have increased their soybean acres. They just continue to produce more and more every year, and right now they are looking at about a 5.3 billion bushel soybean crop if all goes well. Right now they are the main supplier to China and we are the secondary supplier, so that is very big competition.” 

With U.S. corn stocks at their lowest volume in the past decade and demand for ethanol on the rise, overall demand for corn should continue to rise in 2022, Hultman predicted. He cautioned farmers to remain wary when considering planting decisions, however, due to unpredictable OPEC oil production decisions and the volatile, politically influenced nature of energy-based demand. 

While the corn market peaked in May, prices have remained above or near the $5 per bushel mark for corn since then. “The level of buying that occurred in late April and early May was phenomenal, with corn shooting up to $7.48 per bushel,” said Hultman. “Traditionally, corn tends to peak in late May and falls off towards the harvest period. Well, corn prices really didn’t break until sometime in August, when we had some rain forecasts come in and when Hurricane Ida hit. Even through all that, they still held basically above the $5 line, and that to me suggests a very well supported market.”  

Ethanol demand has continued to support the corn market and provide good margin throughout the year, the analyst commented. He added that ethanol should continue to help keep corn buoyant into the next marketing year. Considering a continuance of the supply chain constrictions that plagued shippers in 2021, Hultman projects an average national “target” price of $4.60 per bushel for corn in 2022. 

“This is an average estimate and there is a lot of variation to this, but this gives us a target to shoot for or an idea for what cash corn prices as a national average should be in a constrained supply situation,” he said. “Historically the answer is $4.60, though we are (currently) trading at a dollar above that. I think there are two reasons: we have a fertilizer problem and I think there is concern that corn production outside the United States is going to suffer because of the high expenditure. The other situation is the profitable margin that ethanol is showing this fall. Pandemic or not, I think we will continue to see this situation. This is the bullish or good news for corn this year.”

Variables influencing corn and soybean profitability in 2022 include the length and severity of the Omicron variant outbreak in the U.S. and abroad, Hultman predicted. If the nation were to enter into another pandemic lockdown, demand could again plunge for biofuels. 

“There is a lot we don’t know about soybean demand moving forward, and right now the news is not good,” Hultman said. “Domestic crush is strong at the moment but exports are at risk of being much lower than the USDA has penciled in right now.” 

Hultman explained how in late October China’s soybean prices started breaking down, shocking the market and depressing the value of soybeans. 

“That was very unexpected. It looked like China’s needs were going off the chart, even after buying all of Brazil’s crop through the summer. It looked like we were set up for a very strong fall in purchases from China, then all of a sudden something happened,” said Hultman. “We are hearing about economic problems they are having, along with the shutting down of some of their crush plants due to electricity problems. Something happened to their demand that doesn’t make our soybeans look so bullish anymore, and we are quickly losing our window of opportunity at a time when we are usually making sales to China.”

Farmers saw the same explosive volatility with soybean prices this summer as they saw with corn, Hultman noted. “We had biofuel rumors...we had the Chinese premier threatening speculators, we had weather uncertainty and the drought threat. We also had the September USDA report that added 80 million bushels of stock, and that was a shock to the market that we haven’t yet recovered from,” he said.

Considering the current USDA estimate of eight percent ending stocks-to-use ratio for soybeans, the historical price target for cash soybeans suggests a target of $10.80 per bushel for 2022, Hultman reported. On November 30, soybeans were fetching around $12 per bushel, but the DTN analyst doesn’t expect that price to hold. 

“There is a lot of uncertainty and there can be more surprises ahead. Even considering the eight percent end stocks-to-use ratio (the historical record) suggests $10.80. If we don’t hit the export goal, which it doesn’t look like we will, this target goes even lower. I think roughly, overall, $10 ought to hold the cash soybean price in a tough scenario,” Hultman said. 

“I think it’s safe to say that USDA’s export estimate is too high. It is difficult to envision a scenario where we can get there, unless China is just playing possum and is waiting for some moment to strike and make a big purchase. I don’t expect it, considering the prices we are now seeing in China. Brazil’s soybean crop is off to a good start, and is on track for a record harvest. And crush incentives have been favorable, but it’s going to be tough for it to be as favorable in the months ahead,” Hultman added.