Corn futures are poised for further gains, Fitch Solutions said, lifting its price forecasts, citing “a deteriorating outlook for global production”, and the knock-on effects of the Ukraine war.

The analysis group raised by $0.15 per bushel to $6.90 per bushel its forecast for average 2022 Chicago corn futures prices, on a second-month contract basis.

Fitch said that “our revised forecast reflects our view that prices will average close to $7.00 per bushel for the remainder of the year,” a level ahead of the $6.85 a bushel at which the nearest-but-one March 2023 contract was trading on Friday.

The forecast for average 2023 prices was raised too, by $0.60 per bushel to $6.60 per bushel, around the level that Chicago investors are pricing in.

‘Deteriorating production outlook’

The upgrades reflected an expectation that “corn prices will find further support – and so, remain above their pre-2022 levels – in a deteriorating outlook for global production in 2022-23”, Fitch said, cutting harvest expectations “for several key markets”.

Combined European Union and US corn production will fall by more than 40m tonnes year on year thanks to dry and hot weather, and the incentive to scrimp on fertilizers thanks to high prices.

With Ukraine’s production forecast tumbling to 12.1m tonnes following Russia’s invasion, increases to Brazilian and Chinese harvests would be more than offset, sending world output down 36.5m tonnes year on year to 1.178bn tonnes.

“We now forecast that the global corn market will fall into a deficit of 8.8mn tonnes in 2022-23,” Fitch said, noting that this estimate exceeds the US Department of Agriculture’s estimate earlier this week of a 7.6m-tonne shortfall.

‘Bullish impetus’

The group noted the extra “bullish impetus” to corn prices from the extent of the cut in volumes available in exporting countries.

With Ukraine’s exports expected to be limited to 13.0m tonnes, down one-half year on year, “close to four-fifths of the USDA’s forecasted corn exports for 2022-23 will be sourced from just three markets: the US, Brazil, and Argentina”.

This will render corn prices “highly sensitive to crop developments” in these countries – including the US, and its heat-reduced yield expectations.

Fitch’s forecasts factored in a “muted” outlook for world demand growth in 2022-23, of just 7.4m tonnes, reflecting expectations a flat feed market, but expanded use in making ethanol.

“Elevated fuel prices will support demand for corn-based biofuels in transport markets in which corn-derived ethanol is either the predominant or one of the leading variants of alternative fuel, such as the US.”