Commodities Fundamentals: Corn

What are the core fundamentals of corn? What factors affect corn's price movements? What are the determinants of corn yields? Who are the major producers of corn? How does the corn being used? Why is it important? Where is it traded?

Corn is a one-of-a-kind grain with no plant counterpart. Corn's origins are still debated. There is no historical evidence of wild corn in its current form. It cannot survive in the wild because it has no way of dispersing its seeds, or kernels. Humans must plant and cultivate it each year in order to produce a crop. Corn is a valuable food source for both humans and animals, and unlike other grains, it can be grown in a wide range of climates and conditions, making it a valuable cash crop. Corn is used for more than just feedstock; it is also processed into starches, corn oil, and even fuel ethanol.

Corn production varies from year to year. Corn production is determined by two factors: harvested acreage and yield per acre. The number of acres harvested is proportional to the number of acres planted. Some planted acreage may not be harvested due to crop failure, pest infestation, or extreme weather events that would destroy the crop. Crop yield is the primary driver of production, and it is highly dependent on weather conditions during the critical tasseling and pollination stages. As a result, of technological advances in farm machinery, fertilizer, and genetically modified seed, among other things, yield is increasing.

It is noticeable that yield from year to year can be extremely volatile. Yield fluctuations of more than 10% from one year to the next are not uncommon. The weather has a significant impact on corn, particularly in June and July. Corn prices will almost certainly rise if the weather turns bad. However, prices will likely hit their lows in the fall because of the harvest. This kind of volatility may present great opportunities for speculation and great returns with different volatility trading strategies or with more advanced and sophisticated strategies involving volatility options strategies. However, due to these fluctuations, there is a need for corn futures contracts and liquid futures markets to hedge against these price movements, so farmers can program their crops better with predetermined sale prices. This helps them to manage their finances and stay determined in producing corn, while still making some profit to live, even in extremely volatile markets.

In the grain market, supply is concentrated during harvest, while demand is distributed throughout the year. This generates more supply than immediate consumption. As a result, storage is a critical concern in grain markets. Grain elevators near major rivers and ports for shipping store the majority of grain. A system of bins, tanks, or silos that can store grain in bulk before emptying it into trucks, bulk carriers, or railcars for delivery to end users.

Corn is grown on all continents except Antarctica and in more countries than any other crop. It can grow in a variety of climates. Worldwide, approximately 35 million hectares of land are dedicated solely to the production of corn, a business valued at more than $20 billion per year by the United States Department of Agriculture. The United States leads the world in corn production. China is the world's second-largest corn producer, followed by the European Union and Brazil. Because of abundant land and helpful government subsidies, the United States has historically dominated corn markets — and continues to do so. China is also a significant player with the potential to become a market leader in the future. Argentina, Ukraine, Mexico, and India are four other notable producers.

Corn began as a primary human food source, but it is now primarily used as animal feed. Corn is important as livestock feed because of its high-energy value. Corn is the most commonly used carbohydrate source in animal feed. The main reason is that corn contains a lot of starch. Corn starch is also used in consumer and industrial products. Corn starch is used in a variety of products, including paper, adhesives, and thickening agents. Corn feed accounts for roughly two-thirds of the beef industry's input costs in the United States. Rising grain prices may be good news for grain farmers, but they are certainly bad news for ranchers and poultry producers. Corn's culinary use may be unrivaled by any other grain, making this a potentially profitable investment. Corn is consumed as food in the form of kernels as well as in products such as cornflakes, tortillas, and popcorn. Other products derived from corn include vegetable oil and high fructose corn syrup. Corn, in addition to being a food source for humans and animals, is also used to produce ethanol, a type of fuel. In the United States, the most popular biofuel is ethanol, a type of grain alcohol derived from corn. Since 2005, corn has made headlines for its use as a fuel in the form of ethanol. Ethanol is an alcohol-based fuel derived from simple sugars and starches found in a variety of crops. When blended with gasoline, ethanol raises the octane level of the fuel while lowering carbon monoxide emissions produced by automobiles. Approximately 40% of all corn production in the United States is now used as an input for biofuel refining. Because of its versatility, it is one of the most important crops in the world.

Corn Processing and Utilization

The United States is not only the world's largest producer of corn but also its largest exporter. Japan, China, and Mexico are by far the biggest corn importers, followed by South Korea and Vietnam. Both countries produce a few coarse grains. However, due to their large meat production, they must import corn for feed use. Argentina and South Africa are both major corn exporters. The United States consumes the most corn globally, followed by China, the European Union, Brazil, and Mexico. Corn demand is driven primarily by its use in livestock feed for animals such as cattle, hogs, and poultry.

Today, the majority of corn crops in the United States are grown with Global Genetically Modified (GMO) seeds, and many believe their use will help to double corn output in the United States by 2030. They have been warmly welcomed in Brazil, Argentina, China, and India. The European Union, on the other hand, has maintained a closed-door policy, prohibiting their use since 1998. Non-GMO corn is scarce on international markets, while GMO corn is primarily produced in the United States, Brazil, and Argentina. Most EU countries do not produce GMO corn due to national legislation, but they import GMO corn to feed animals. It is important to note that sweetcorn grown in Europe for human consumption is GMO-free. With agriculture transitioning from a regional to a global industry and the high demand, the inevitable rise in GM seeds will result in agriculture's most sustainable trend.

Corn futures contracts are traded in a variety of countries. The most liquid corn futures trade on the Chicago Board of Trade (CBOT) is the closest thing to a global benchmark, but there are many other regional and national exchanges, particularly in China and Latin America. It is also traded on the Euronext-LIFFE exchange in London. The futures markets provide the most direct way to invest in corn. The Chicago Mercantile Exchange (CME) corn contract assists farmers, consumers, and investors in managing and profiting from underlying market opportunities. Corn futures are typically measured in bushels (as with the corn contract the CME offers). Large-scale corn production and consumption are measured in metric tons.

Corn prices are affected by seasonal and cyclical factors, which have a direct and often powerful impact. Corn generally has a lower price from September to November due to a large amount of corn on the market. Prices then tend to rise from December to May. In fact, this could continue all summer. The reason for this is the possibility of inclement weather. The commodity is known as maize in some countries. The balance of domestic and international supply and demand in the United States primarily determines maize prices, but they are also influenced by availability in Argentina and China. Low stocks and high prices will limit consumption, with other grains replacing maize, particularly in animal feed. For use in the feed sector, the corn market competes with other grains. Sorghum, barley, and oats are some other feed grains available to livestock producers. Furthermore, when corn is more expensive than wheat, livestock producers can feed wheat to their animals. Corn, also, competes with sugar in the sweetener market, particularly in soft drinks. However, higher prices will encourage the planting of maize, and consumption growth can be expected to resume strongly once stocks start to be rebuilt.

With the increased use of corn to make ethanol for fuel, the future outlook for corn demand appears bright. Corn demand from ethanol production will not change until additional and cheaper ethanol sources are established. Drought and heat are two common stressors for agricultural plants, both of which will increase volatility. Another factor to consider is that corn requires more fuel and fertilizer than other crops, and as input costs rise or credit facilities become unavailable, farmers in many countries, particularly in South America, may turn to other commodities. This reduces the corn crop and, eventually, the entire supply, raising prices.