Corn Prices

Corn is the most produced crop in the world with a worldwide production of over 800 million metric tons per year. The United States is by far the largest producer of corn as well as the largest exporter. The country not only produced but also exported more than a third of the world’s corn in 2013/2014. China also plays a major role as a producer of corn but exports almost none of it. The European Union and Japan are the largest importers of corn, together, contributing about 25% of global corn imports. The USDA is by far the most important monitor of Corn yields and production. The USDA reports are watched closely by traders worldwide as a consequence.

Corn prices have been very volatile in the last decade. In the US, corn has traditionally been used for animal feed noting that until 2006 well over half domestic production was used in the feed industry. Between 1995 and 2013 demand from food, seed and industrial use rose by 293%, while demand from the feed industry rose by a mere 13%. Total corn demand rose by 57% within the same period. The shift to alternative uses for the grain, most notably its use in biofuels, has influenced global corn prices immensely. Currently alternative uses consume more corn than the feed industry and as such have become a large determinant of corn prices.

The use of corn for ethanol and byproducts is around 40% indicating the growing importance of biofuels¹. While Corn previously was the main feedstock for ethanol in the US, in Brazil, another major corn exporting country, ethanol is produced from Sugar Cane. Many say that the use of corn for fuels is the single most important influence of higher corn prices.

Source: WASDE report 12/01/1

Historically speaking corn prices have been high in recent years. Many believe the “super cycle” of commodities has ended and that corn prices will settle on lower levels in the coming years. The largest contributing factors for lower corn prices seem to be credited to slower economic growth, global oversupply in addition to lower crude oil prices.

The importance of ethanol seems to be the swing factor in corn prices. Initially, ethanol and corn prices will be brought down by lower crude oil prices; first of all because of lower production costs, secondly because downward pressure on all fuel prices. However, because of admixture requirements by governments, higher competitiveness of crude oil means more ethanol demand, which could in turn result in rising prices of ethanol and corn.

Aside from the physical market, corn is also one of the most actively traded agricultural futures contracts in the world. Only CBOT SRW wheat is more actively traded, which results in corn prices being very transparent, meaning they can be traded easily. The largest volume of corn futures is being traded on the Chicago Board of Trade in the US, followed by the China based Dalian Commodities Exchange. Companies around the world trade on the CBOT to hedge against corn price volatility or take speculative positions. 

The CBOT is seen as the best representation of world corn prices. Around the world CBOT corn prices are used as a benchmark to which basis prices are determined. Other liquid corn contracts are traded on the Intercontinental Exchange (USA), the Matif (Europe) and the Bovespa (Brazil). For monitoring where prices go traders tend to keep an eye on market movements in Chicago in combination with the reports that the USDA produces.

Corn Prices in the United States