Expect corn reaching US$525 per bushel in 12-month period

Our guest is bullish on agricultural

commodities with the Middle East

conflict disrupting critical supply

chains for agriculture. We're talking

about wheat, uh soybeans, corn, and of

course fertilizer. We're joined by our

colleague Krikor Gevorgyan, commodity

strategist at Citi. Thank you very much

indeed for joining us.

Thank you for having me. Just remind us

of what the problem is for farmers

around the world.

Well, it's fertilizers and now it's

being weather as well. So, it's it's a

very complex problem and uh fertilizer

prices have been rising uh as Middle

East and particularly countries uh that

are sitting and exporting through Strait

of Hormuz

uh represent a third of the global

fertilizer exports. So, with the

current disruptions on the on the uh

vessel flow in the Strait of Hormuz,

um it becomes very problematic for

farmers to procure enough fertilizers,

especially in uh Brazil and India, while

the rest of the world ends up paying a

higher price or premium uh on those

fertilizers and specifically on nitrogen

uh and sulfuric acid. Yeah, there's a

story on Bloomberg today that India, the

world's biggest importer of urea,

nitrogen fertilizer, um has seen the

price double or paid nearly double the

price

um that it that it had to pay pre-war.

That's correct. Yes. And uh fertilizer

prices represent about 50 to 60% of

variable cost for major grains um along

with energy uh right? You need diesel

and all other input um factors. So, all

of that um

kind of uh provides a huge disincentive

for farmers to apply fertilizers at the

adequate level, which at the end would

lead to our estimations to some of the

lower uh yield crop yields

um and lower supply.

So, that's that that's being kind of a

bullish story underlying this.

Walk us through the crucial commodities.

Start off with corn if you would. Um do

you see higher corn prices in the months

ahead?

Yes.

Uh in the very near term, we see corn

hitting $5 per per bushel. Um it's

currently on the spot at uh 475 and then

we we kind of expect it to to increase

gradually. So, overall um in the in the

grains complex,

uh we are more bullish on corn and wheat

specifically. Um while soy we think will

be dragged by the complex, but probably

will stabilize at the higher levels as

the run-up already happened and which

was dragged by the higher soybean oil.

So, the assumption is once there is some

sort of

stabilization on the Strait of Hormuz

and once the vessel flow starts to

operate, um which kind of consistent

with our uh broader energy and oil view,

uh soybean oil will will pull back and

uh that probably

um will serve as a cap for how much

higher soybeans can go up. Uh but corn

and wheat are being supported and wheat

specifically now um in in addition to

the Strait of Hormuz uh problems, um

the weather has not been very favorable

uh especially in the Middle East with

the some freezing temperatures and that

in our assessment will

uh cause

a decline in in the yields on on the

wheat side. Uh the fertilizer kind of

application and the prices will start

playing out probably down the road in

2026, 2027. Uh US farmers, farmers in

the US uh and um North America in

general are uh

probably will still be able to procure

and and buy fertilizers. It will be

again just uh happening at the higher

prices. Now, farmers in Brazil

could actually uh find a problem and in

India as well could find it's

problematic to procure the the levels

that they were procuring in the past. Um

and as a result, that will create a

global um kind of supply shortage, which

will create a higher pull on the US

supplies and uh beneficial for Cbot.

Apparently, the International

Grains [clears throat] Council

says

that grain inventories globally are

expected to jump 9%

uh by the end of the 2025-2026

season if uh unexpected production surge

kicks in. So, will that put a cap on

grain prices?

Well, not necessarily because it's again

uh the prices that I mentioned are for

the new crop and for the future season

so, which is 26-27.

Uh and um as of now, the planning season

is currently intact in the US and in the

most of the northern hemisphere. So, um

and it's been moving so far relatively

well. The main concern that um

investment community has is about how

much um farmers will try to replant what

they originally thought will be planning

for corn

um and because of the high nitrogen uh

prices, um they would probably kind of

withhold that and plant more soybeans as

a result of that. So, again, which will

uh go in tandem with the story that

we're presenting where soybeans probably

will be dragged higher by the by the

overall complex, um but it it will be

capped to the upside on the upside.

I This will feed into global food

inflation, presumably.

Um if the situation continues and if the

fertilizer prices continue to stay

elevated uh for another month or two,

absolutely.

And are there Do governments have

stockpiles of grains that they can

release to uh try to keep local prices

down, food prices down?

Yes, there are some, but um with the

grains, the problem is that the the

lifetime of how how long you can store

it is relatively short. So, you almost

always need to have some new supply that

will be coming in. So, um in in

in general, kind of the higher prices

uh would be uh the way to mitigate that

as farmers become more incentivized to

to increase acreage and to plant more.

Um so,

uh there probably would not be any

physical shortage of the supply, but

again, the higher prices will will be

associated with that. We're tight for

time, but we were interested to discover

from your report that um Canada is a

fairly significant supplier of soybeans

uh to Iran. Brazil is bigger, but I

didn't even know Canada was that much of

a soybean exporter.

Uh yes, it is. And Middle East is

actually one of the biggest um

uh and that's another factor that plays

out in the fundamentals is the Middle

East uh consumes a lot of grains, right?

There's very little production there.

Uh it represents about depending on the

grain about 7 to 8% of the uh global uh

demand. Um but with when you put it in

context with the much lower supply, uh

those factors outweigh to on the on the

bullish side.

Arkady, thank you very much. Arkady

Gevorgyan, commodity strategist at Citi.

Really appreciate it.