Corn

Corn is a member of the grass family of plants and is a native grain of the American continents. Fossils of corn pollen that are over 80,000 years old have been found in lake sediment under Mexico City. Archaeological discoveries show that cultivated corn existed in the southwestern U.S. for at least 3,000 years, indicating that the indigenous people of the region cultivated corn as a food crop long before the Europeans reached the New World. Corn is a hardy plant that grows in many different areas of the world. It can grow at altitudes as low as sea level and as high as 12,000 feet in the South American Andes Mountains. Corn can also grow in tropical climates that receive up to 400 inches of rainfall per year, or in areas that receive only 12 inches of rainfall per year. Corn is used primarily as livestock feed in the United States and the rest of the world. Other uses for corn are alcohol additives for gasoline, adhesives, corn oil for cooking and margarine, sweeteners, and as food for humans. Corn is the largest crop in the U.S., both in terms of the value of the crop and of the acres planted.

The largest futures market for corn is at the Chicago Board of Trade. Corn futures also trade at the Bolsa de Mercadorias & Futuros (BM&F) in Brazil, the Budapest Commodity Exchange, the Marche a Terme International de France (MATIF), the Mercado a Termino de Buenos Aires in Argentina, the Kanmon Commodity Exchange (KCE) in Korea, and the Tokyo Grain Exchange (TGE). The CBOT futures contract calls for the delivery of 5000 bushels of No. 2 yellow corn at par contract price, No. 1 yellow at 1-1/2 cents per bushel over the contract price, or No. 3 yellow at 1-1/2 cents per bushel below the contract price.

Prices – Corn futures prices in 2010 traded sideways to lower in the first half of the year and fell to a 1-1/2 year low of $3.2450 a bushel in June 2010 on the prospects for a record U.S. corn crop. Corn prices then climbed the rest of the year and posted a 2-1/2 year high of $6.30 a bushel in December 2010 and finished the year up 52% at $6.20 a bushel. Prices advanced further and in February 2011 rose to a 2-1/2 year high of $7.2425 a bushel. Despite the 8.4% y/y increase in U.S. corn production in 2009/10 to 13.1 billion bushels, strong foreign and domestic demand has underpinned prices. U.S. corn demand for ethanol production continued to climb and in February 2011 the USDA raised its corn usage estimate for ethanol production to a record 4.95 billion bushels, which prompted a cut in the USDA’s 2010/11 US carry-over estimate to a 2-1/2 year low of 675 million bushels. The other major bullish factor for corn prices was Chinese demand. China in 2010 became a corn importer for the first time in 15 years as its own domestic corn supplies were crimped by a drought and an increase in feed demand due to expanded domestic pork and beef production. With Russia’s action to ban grain exports in 2010 due to drought, the U.S., along with Brazil and Argentina, became the world’s main source of corn supplies. With global corn supplies continuing to dwindle, the USDA in February 2011 cut its global corn carry-over estimate to a 4-year low of 122.51 MMT. The corn stocks/use ratios for 2010/11 were extremely tight with the US stocks/use ratio of 5.0% matching the 7-decade low posted in 1995-96 and the world stocks/use ratio at 14.6%. This should support corn prices going forward even though the USDA is predicting US corn acreage in 2011 may rise to a 4-year high of 92 million acres.

Supply – World production of corn in the 2010-11 marketing year rose +0.2% to a new record high of 813.78 million metric tons. The world’s largest corn producers are the U.S. with 42% of world production, China (20.6%), and Brazil (6.3%). Corn production in both China and Brazil has nearly tripled since 1980. Production in the U.S. over that same time frame has risen by about 50%. The world area harvested with corn in 2010-11 rose +0.3% yr/yr to 307.9 million hectares, down from the 13-year high of 318.0 million hectares in 2007-08. World ending stocks of corn and coarse grains in 2010-11 fell by –15% to 123 million metric tons.

U.S. corn production for the 2010-11 marketing year (Sep-Aug) fell by -5.1% yr/yr to 12.446 billion bushels. U.S. farmers harvested 81.446 million acres of corn for grain usage in 2010-11, which was up +2.3% yr/yr. U.S. corn yield in 2010-11 fell to 152.8 bushels per acre from 164.7 bushels per acre in 2009-10. U.S. ending stocks for 2010-11 fell 60% to 675 million bushels. The largest corn producing states in the U.S. in 2010 were Iowa with 17.3% of U.S. production, Illinois (15.6%), Nebraska (11.8%), Minnesota (10.4%), and Indiana (7.2%). The value of the U.S. corn crop in 2010-11 was $47.378 billion.

Demand – World consumption of corn and rough grains in 2010-11 rose by +1.6% yr/yr to 1,123.2 million metric tons, which was a new record high. The U.S. distribution tables for corn show that 5.25 billion bushels of corn were used for livestock feed in the marketing year 2009-10 (latest data available) or about 42% of overall utilization. The second largest demand category for corn is for ethanol production (alcohol fuel) with usage of 4.700 billion bushels in 2010-11. That was up +4% y/y and was 75.0% of total non-feed usage. While the U.S. ethanol industry is a big consumer of U.S. corn, about 30% of the corn is returned to the corn market in the form of distiller dried grains that is used as feed for livestock. After ethanol, the next largest non-feed usage categories are for high fructose corn syrup (HFCS) with 9% of U.S. usage, corn starch (5%), glucose and dextrose sugars (5%), cereal and other corn products (4%), and alcoholic beverages (3%).

Trade – U.S. exports of corn in 2010-11 (latest data available) rose +4.6% yr/yr to 49.833 million metric tons, which is farther below the record high of 61.417 million metric tons posted in 1979-80. The largest destination countries for U.S. corn exports are Japan, which accounted for 29.5% of U.S. corn exports in 2010-11, Mexico (16.5%), South Korea (13.6%), Taiwan (6%), Egypt (6%), and Canada (3.9%).

Excerpted from the CRB Commodity Yearbook. For more information on CRB products click here

Corn

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