Corn Prices

Corn Producers
	Country	2014/2015
1.	United States	361,091	See Data
2.	China	215,500	See Data
3.	Brazil	75,500	See Data
4.	European Union	74,160	See Data
5.	Ukraine	28,450	See Data
6.	Argentina	23,500	See Data
7.	Mexico	23,200	See Data
8.	India	22,500	See Data
9.	Canada	11,500	See Data

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

Country	Percentage of World Production	Percentage of World Exports
United States	36%	37%
China	22%	0%
Brazil	8%	16%
European Union	7%	2%
Ukraine	3%	15%
Southeast Asia	3%	1%
Argentina	3%	12%

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

Industry professionals tend to look at developments in US as a guideline for world corn prices. The US Department of Agriculture, USDA, makes estimates about both American and global supply and demand in a monthly report, which is seen as the leading indicator of market factors. The USDA map on this website gives a great overview of the main corn producing areas in the US.

Almost all of the Corn produced in the United States comes from an area called the “Corn Belt”. The region consists of the states Iowa, Illinois, Indiana and several surrounding states. Physical corn prices tend to have negative basis levels in these areas. Analysts and traders worldwide monitor weather conditions in the Corn Belt closely and base their trading decisions on the weather patterns. Several of the larger trading houses send analysts around the country to see what the crops look like and have a competitive advantage in predicting the direction of corn prices. In addition to these analysts traders rely on the numbers and reports that are produced by the USDA. Not all companies have the money and the contacts to send researchers into the field. The USDA is a reliable and open source of information for the entire market.

While a lot of corn is produced in the Corn Belt, most of the corn is exported from the Mississippi Gulf area. More than two thirds of all US Corn exports go through the elevators located in this region. As a result, international companies tend to attach high value to corn prices in the area. The USA is responsible for more than a third of world corn exports so the corn prices in the Gulf are in many ways the corn prices of its importers.

Corn is transported mainly by rail and barge to the ports in the south. Haulage and shipping costs are an important determinant of corn prices. When sea freight prices go up considerably, traders have been known to use ports on the Atlantic coast instead of the Gulf, a shorter sea route to Europe. Corn prices in the ports are normally quoted as basis levels in relation to the futures traded on the CBOT. Basis levels tend to be more static than flat prices and correct for location specific factors. Basis trading makes it easier for commodity traders to hedge their corn prices.

Location	Volume (1,000 metric tons)	Percentage of Total Exports
Mississippi Gulf	14,828	67%
Interior	3,943	18%
Pacific North West	2,973	13%
Texas Gulf	255	1%
Atlantic	242	1%
Great Lakes	0	0%
Total	22,241	100%

Corn Prices in South America

South America exported about 30% of the world’s corn in 2013/2014, which makes it an important area for world corn production as well as corn price setting. Although corn production is lower than that in the United States, a larger percentage of the corn is exported. As of now, Brazil is the second largest exporter of corn, closely followed by Ukraine.

The largest Corn growing areas in South America are Parana and Mato Grosso in Brazil, and Buenos Aires and Cordoba in Argentina. These regions account for over 40% of the total Corn production between the two countries. Brazil produces about 82 million metric tons of corn while Argentina produces about 27 Million Metric tons². The vast majority of corn is exported through the ports of Paranagua and Santos in Brazil and in Argentina the important ports are Rosario and Buenos Aires. In addition to the US Gulf, these ports are also the most closely watched for corn prices. In addition to the USDA reports, in South America also the Conab produces important reports.

South American corn can be divided by two crops; full season crop and Safrinha crop. Planting of the normal crop normally occurs in September/October and is harvested in February/March. Due to high corn prices in the recent years farmers have begun planting a Safrinha crop after the first soybean harvest. This corn is planted in February and harvested in June-August. In the past, Safrinha crop was mainly planted exclusively in times of high demand and high corn prices. However, nowadays, Safrinha crop production is larger than normal crop production.

While both Brazil and Argentina are significant corn exporters, both countries have their own difficulties when it comes to exporting the grain internationally. These difficulties have a significant influence on corn prices, and more specifically the costs incurred by the farmers and traders.

In Argentina, farmers and exporters have decreased their exports because of government export policies and high inflation. In Brazil, increased exports of soybeans and corn have exposed the major infrastructural challenges that Brazil faces. Brazilian freight cost for getting the crops from the interior to the ports is 4 to 5 times more expensive in Brazil than the cost in the United States. Brazil is also known for having logistical issues in the harbors resulting in long line-ups of vessels during harvest time. Line-ups of 30 days or longer have significantly increased freight prices of importing companies, making Brazil less attractive as a destination.

As Brazil is an exporting country, the corn price the farmer has is established by global supply and demand. In addition, since haulage rates are based on local factors, the costs involved with logistics of exporting have a large influence on the profit margin for the Brazilian farmer. Government and private investments are being made to improve infrastructure in Brazil for more successful exporting, namely new harbors are being built to decrease the pressure on the current harbors. Brazilian farmers have relatively big farms and are technologically advanced; investments are constantly being made to increase yields and production. As more corn finds its way into the market this could have a depressing effect on corn prices. Brazilian farmers are relatively flexible when it comes to allocating land to corn or soybeans, so the importance of soybeans could play a large role.

Corn Prices in Europe

The European Union and Ukraine produce about 10% of the world’s corn crop. Aside from having a strong presence in corn exporting, the EU is also responsible for 13% of the world’s imports. On the import side the EU is one of the most important players for establishing corn prices. The major trading partner of the EU when it comes to corn is the Ukraine. In 2013/2014, 46% of total Ukrainian corn exports went to Europe.

The dependence on Ukrainian corn makes the continent vulnerable to the political instability of the country and the effect on supply and corn prices. Because of the recent devaluation of the Hryvna as well as favorable crops in both 2013 and 2014, Ukraine has significantly increased exports of corn. Hryvna denominated corn prices on the export market have taken a leap. If inflation rises even more the risk exists that farmers will hold on to their crops as a hedge against inflation. If Ukraine exports experience difficulties in upholding their volumes because of political instability, Romania could potentially compensate for the loss. Corn prices FOB Constanta have gained in importance for European traders.

Another important determining factor of corn prices in Europe is the myriad of policies the European Union has set in place in order to protect the European farmers. The last 4 years, import duties for corn have been 0 but at the end of 2014, the EU decided to impose an import duty of 5.32 Euro per MT. Falling corn prices in the world were putting pressure on the competitiveness of the European farmer and the EU decided to protect their farmers.

The leading corn producer in the European Union is France, followed by Italy and Romania. France consumes about half of its own produce with the remainder is exported to other European Countries.

In comparison to the US there are two main differences in corn production. European farms are much smaller than their American counterparts and, most importantly, European farmers are not allowed to plant GM corn. Both factors influence yields as well as the sheer size of the production and are important reasons why corn prices are supported in Europe.

Major ports that are looked at for corn prices in exporting are Bordeaux, France and Constanta in Romania. Within Ukraine most corn is exported from the Illichevsk, Nikolaev, Odessa/Yuzny triangle. Because the Black Sea is such an important destination for the sourcing of corn it is also known as the breadbasket of Europe.

In the long term European farmers are very dependent on what politicians decide. Corn prices in Europe tend to be higher than world market prices because of high production costs and small farm sizes. Current volumes can only be sustained through subsidies, especially because worldwide corn prices are under pressure.

Corn Prices in Asia

China is by far the biggest corn producer throughout Asia. The country produces more than 200 million metric tons of the grain per year. The country imports only around 2-3 million metric tons, or about 1% of yearly demand. Most vessels arrive in the largest port of the country, Dalian. Main crop growing areas lie in the East and North East in the provinces of Jilin and Heilongjian. (See USDA map on this page). Corn prices in China are very much determined by local supply and demand factors as well as state interference.

The Chinese government has been stockpiling corn the last few years as a strategic asset. The high corn prices this has caused have incentivized Chinese farmers to grow more corn. Between 2008, when the subsidies started, and 2013 the food buying program increased corn output by 43%³. While world corn prices are under pressure amidst a worldwide glut, corn prices in China are still far above market rates.

Aside from supporting corn prices, China also uses an import quota system to keep out cheap imports. Furthermore, the country subsidizes the transportation of corn from the northern provinces to the southern ports in an effort to keep domestic corn prices competitive. Recently there have been several issues with refusals of corn vessels coming from the US. These vessels are being refused because of GMO traces, for which China has a 0% tolerance. Because of the complicated system of subsidies, rules and the dependence on the internal market it is very hard for outsiders to track Chinese corn prices or production figures.

The best indicator for Chinese corn prices, as well as corn prices in Asia as a whole, is the Dalian Commodity Exchange. The corn contract traded on the Dalian Commodity Exchange is the second largest corn contract in the world in terms of volume traded. The USDA every year keeps track of the volumes of Corn that are exported from the US to China.

India is the second largest producer of corn in Asia. The grain is the 3^rd most important staple crop in the country following rice and wheat. The country produces between 20 and 25 million metric tons of corn and exports between 10% and 20% of yearly corn crops. The crop is mainly exported from the ports on the east coast of India and is where Asian traders look for corn prices. At the moment India is the largest corn exporter on the continent and, because of quality issues, offers the lowest corn prices. By the year 2020 India is expected to be a net importer of the grain due to increased internal demand.

As with China, corn prices in India are supported by government intervention prices. Demand for the grain has been rising the last few years because of increased demand from the poultry industry and the increased use in starches and industrial products. Corn prices are very much determined by the internal market, but yields and quality issues remain a problem in the country. This is why corn is used mainly for feed purposes.