Corn
Corn futures began trading at the Chicago Board of Trade in 1877 and is the largest Agricultural futures contract in the world. While corn is grown in nearly every state in the U.S., production is concentrated in the central portion of the country called the corn belt.
Planting corn begins in the southern states as early as March, in the corn belt by late April, and is completed in the northern areas by the end of May. Maximum growth is achieved in the main corn producing areas by late August and harvest begins in early October. By mid-November, most of the corn has been harvested.
Contract size = 5,000 bushels
Tick value = 1 cent / $50
Minimum tick value = 0.25 / $12.50
Corn is mainly used in ethanol production and livestock feed.
Planting corn begins in the southern states as early as March, in the corn belt by late April, and is completed in the northern areas by the end of May. Maximum growth is achieved in the main corn producing areas by late August and harvest begins in early October. By mid-November, most of the corn has been harvested.
Contract size = 5,000 bushels
Tick value = 1 cent / $50
Minimum tick value = 0.25 / $12.50
Corn is mainly used in ethanol production and livestock feed.
The top exporters of corn in the world are:
1. USA
2. Brazil
3. Argentina
1. USA
2. Brazil
3. Argentina
Things effecting corn prices?
- Weather - There was the 2012 drought that affected many growing and production regions in the US. The impact was unfavorable and there was a reduction of corn yields in 2012 to 123.4 bushels per acre. For three years national average corn yields were reduced below trend expectations due to weather.
- Ethanol production - Biofuel production will continue to increase because of the Energy Independence and Security Act (EISA). EISA mandated an increase in biofuel use from 9.0 billion gallons in 2008 to 36 billion gallons in 2022. It is estimated that ethanol’s effect on corn price is about $.41/bushel, this is calculated using data from 2006-2008.
- Energy Costs - Higher energy costs imply higher costs of production for corn and higher costs of transporting corn to market. Energy makes up a significant part of operating costs for most crops. This is especially true when considering indirect energy expenditure on fertilizer because the production of fertilizer is extremely energy intensive, requiring large amounts of natural gas.
- Other crop prices - Corn and soybean compete on multiple grounds. They compete in the cooking oil industry. They compete in the animal feed industry. They also compete in the biofuel industry. Therefore, the production of one does affect the other. In general, if the production of corn falls, soybean prices are expected to rise.
- Planted Acreage and Expected Yield - Decreases in acreage or yield for a specific crop means that production drops and supply decreases, a decrease in supply is bullish for crop prices. Vice versa, if acreage and yields are increased then production is increased and so is supply, which would be bearish for crop prices. This information is published monthly in the USDA's crop progress report and also in the WASDE.
- Government Intervention - Governments employee various measures to maintain farm prices and incomes above what the market will otherwise yield. They include tariffs or import levies, import quotas, export subsidies, direct payments to farmers, and limitations on production. Tariffs and import quotas can be effective only if a country normally imports some of its supply. Export subsidies result in higher prices to domestic consumers than to foreign purchasers; their use requires control over imports to prevent foreign supplies from entering the domestic market and bringing prices down. Direct payments to farmers have been used to maintain prices to consumers at reasonable levels, while assuring farmers a return above world-market levels. Limitations on production with things like acreage control programs, intend to reduce supply and thus increase prices.
- Exchange rates (U.S. Dollar) - Like most internationally traded commodities corn is priced in US dollars. At its most basic a decrease in the value of the US dollar relative to a commodity buyer’s currency means that the purchaser will need to spend less of their own currency to buy a given amount of the commodity. As the commodity becomes less expensive demand for the commodity rises, resulting in an increase in the price and vice versa. A weaker dollar can also act as a disincentive to producers to increase output.
- Global stocks - Stocks (otherwise known as inventories) act as form of buffer for both producers and consumers of corn. Typically, falling stock levels occur if demand increases faster than supply, resulting in higher corn prices. Falling stock levels may, however, make the corn market more vulnerable to an unanticipated disruption to supply or a sudden increase in demand.
