Inside: Grains & Raw Material
Corn: is the glass half full or half empty?
There is much to do about international corn prices. Quotes are dangling at low levels and there is a lot of negativity in the market. The question is: are prices falling even further or has the bottom now been reached?
Would you like to continue reading this article?
Become a subscriber and get instant access
Choose the subscription that suits youWhen the corn futures market falls below $150 per tonne, that is considered low. When corn is scarce, the market easily exceeds €250 per tonne. The past proves this. There were also downward peaks, far below €150 per tonne, in the past. In the United States (US), corn is currently trading at just under $140 per tonne on the CBoT. This is considered low by analysts in the US.
Negative news already priced in
The question is what the corn price will do in the remainder of 2017. Several scenarios are doing the rounds. In the negative scenario (glass half empty), the corn price continues to falter, due to ample stocks and good harvest forecasts. In the 'half full scenario', the corn market has hit a bottom and the negative news has already been priced in. It is not easy to think of more price-pressing news that has not yet affected the corn market.
With current corn prices, most producers will make a loss. Analysts therefore expect American crop farmers to stockpile corn and wait until prices pick up. The United States Department of Agriculture (USDA) expects that demand for corn on the world market will exceed production.
Good demand base
In recent years, the demand for corn has increased explicitly due to the relatively low prices. Since mid-2014, corn on the Matif has consistently traded below $170 per tonne. Analysts expect that this demand will also have to be met in the coming years. Both in the US and abroad.
(Text continues below chart)
The corn price on the CBoT between 2014 and October 2017.
Glass probably half full
On the other hand, the USDA projects a lot of corn production in the Southern Hemisphere. On balance, however, it is expected that production cannot use a setback. An annual phenomenon is that production, sooner or later, is affected by drought or wetness. When production areas in Brazil or Argentina are hit by drought, this will certainly drive up the market.
It is expected that end users will hedge on the futures market in the short term and that will generate demand on the futures market. This is because the CBoT is currently at its lowest level this year. In short: in the 'half full scenario', corn prices are likely to pick up in the coming months and the market has now reached the bottom.