Corn may have a bigger effect on the cannabis industry than previously expected. If you are not already aware, ethyl alcohol and alcohol-based solvents (namely CDA12A) which are used for extraction are largely provided by ethanol manufacturers who use corn as a feedstock in production. In addition to the botanical processing industry, corn ethanol is used in everything from the gas in your car, to the perfume or cologne you wear, to the vodka you drink. You can speak with anyone from the general public and find that they, without even realizing it, have been in some way impacted by— or in contact with — corn ethanol today.
As a publicly traded commodity, corn has its ups and downs, just like everything else. Global events strongly affect this price due to supply and demand. The top five producers of corn are the United States, China, Brazil, Argentina, and Ukraine. Each one of these countries is experiencing events that will have an impact on the price of corn — and with it the price of ethyl alcohol and alcohol-based solvents — in the next 12 months. A brief overview of the production and demand challenges facing the top five in 2022 are as follows:
Prospective planting reports are showing a decrease in overall corn crop planting by about 4.2 percent compared to 2021. Exacerbating the impact of the current planting decrease is the ever-present threat of drought throughout the Midwest. This report is based on information provided directly by farmers as to which crops they are actively planting in their farm acreage. When this report was released by USDA on March 31, corn prices immediately increased, adding $0.20 to $0.25 to the per bushel price domestically.
China’s corn imports are estimated to rise almost 50 percent from the 23.4 million metric tons (MMT) forecasted for 2021/2022 to 34.9 MMT in 2022/2023, partially due to decreased domestic production and increased feedstock needs. Increased mobility restrictions imposed by the Chinese government in response to the latest Covid-19 Omicron variant outbreaks in some of the nation’s largest corn producing provinces have impacted domestic production.
These restrictions are disrupting the transportation of seeds and other planting materials needed to begin the spring-planted crop. This is compounded by new mandates that address environmental concerns by prohibiting stalk burning, which forces farmers to utilize expensive equipment to which a majority of Chinese farmers simply don’t have access.
Although drought decimated their soybean crop, corn production is predicted to increase compared to 2021, which shouldn’t be hard as Brazil’s 2021 production was a dismal 86 MMT compared to the 2021’s 102 MMT due to delayed planting and drought. Whether the predicted corn production increase in 2022 will come true is yet to be seen.
The current prolonged period of drought and low water levels in their main riverways is seriously affecting the South American powerhouse’s agricultural industry. However, the recent Hunga Tonga–Hunga Ha’apai volcanic eruption in the Pacific Ocean should provide some cooler temperatures, halting the effect the drought may have on their corn crops.
In 2021, Ukraine provided 17 percent of the world’s corn. By now the whole modern world is aware of the deplorable events currently transpiring in Ukraine. On March 5, the war-torn eastern European coountry announced an export ban on wheat, corn, sunflower oil, oats, rye, barley, sugar, and cattle. While they have lifted the ban on corn and sunflower oil from the list, their major route of export was the Black Sea, which has been cut off by the Russian invasion. Warehouses sit there full while cargo trains face logistical hurdles, and trucking is stymied.
This is because most truck drivers are men aged 18 to 60 who are not allowed to leave the country and, as a result, are unable to drive agricultural exports across the border. Not only is this war affecting corn outputs this year, many farmers are unable to plant their 2022 crop due to safety concerns ranging from shelling to land mines littering their fields, which will have an impact on 2023 harvests and thus the global market.
With early estimates of 56 MMT setting the bar high, recent droughts have forced an updated corn crop of 47.7 MMT as the estimate for the 2022 corn season. These estimates are being updated monthly in the World Agricultural Supply and Demand Estimates report (WASDE) published by the World Agricultural Outlook Board. However, as opposed to Brazil, Argentina’s geographical location means the above mentioned volcanic eruption is expected to have little effect on providing relief from the droughts plaguing South America.
What Simply Solvents can do
You might ask yourself how all this affects cannabis extraction. Well, one thing we know is that many cannabis processors use ethanol for the entire extraction process. Were you aware that ethanol is also used by just about every solvent based processing during the winterization step? Basic economics shows us that when the cost of inputs increase in manufacturing, the cost of the product either needs to increase or the profit margin needs to decrease.
Simple Solvents aims to keep solvent prices low for cannabis processing companies and labs. We’ve done this by contracting our corn during harvest time and buying in bulk for this year’s projections, which has allowed us to keep our feedstock prices low. In an effort to stabilize the solvent cost to the industry, Simple Solvents is offering a limited number of supply contracts with locked-in pricing to extraction companies for the entirety of the 2022 season. If you’re interested in locking in current prices for the entirety of the 2022 season and avoiding the inevitable price increases caused by the events described above, contact Simple Solvents today and we’ll do our best to keep your operation profitable.