Livestock Feed – Corn accounts for more than 95% of feed grain production in the United States.
Ethanol – Corn is the main feedstock used to produce ethanol, which is an important ingredient in gasoline.
High-Fructose Corn Syrup – This product made from corn starch is used to sweeten many products including ketchup, candies and soft drinks.
Corn Starch – This kitchen ingredient is used to thicken sauces and is also a chemical additive in some medical products.
Cereal – Many breakfast cereals contain corn.
Alcoholic Beverages – Some whiskeys and spirits are made with corn.
Miscellaneous Uses – A diverse array of everyday items contain corn including: Plastics Batteries, Deodorants, Cough drops, Diapers, Matchsticks, Carpets, Crayons, Glue.
What Drives the Price of Corn? The price of corn is usually highly correlated with the price of other agricultural products such as wheat and barley. Furthermore, many of the economic factors that move corn prices specifically include:
1. Ethanol Market – Corn is playing a growing role in ethanol production, so demand for this fuel additive could have a big impact on corn prices. The US government heavily subsidizes corn farmers to boost ethanol production, and farmers make decisions about which crops to grow based on subsidies. If ethanol demand were to dissipate, then markets would have an excess supply of corn, and prices would likely head lower.
2. Crude Oil Prices – Because corn is increasingly being used to make fuels, its relationship with oil prices can’t be ignored. A rise in crude oil prices would likely cause a rise in demand for biofuels as consumers switch to cheaper alternatives. In fact, agricultural commodities used in fuel production have high price correlations with crude oil.
3. Chinese Demand – Analyzing corn prices without mentioning China would be a huge omission. China is the world’s largest consumer of energy and largest importer of petroleum. The country’s energy needs are expected to remain enormous as its economy continues to grow. China is seeking out cheaper and more environmentally-friendly energy sources, and biofuels will play some role in this plan. Any slow down in growth in China could spell trouble for corn prices, while an uptick could lead to higher prices.
4. The US Dollar – As the world’s reserve currency, the dollar can often dictate the direction of commodity prices. When the value of the dollar drops against other currencies, it takes more dollars to purchase corn than it does when the price is high. Put another way, sellers of corn get fewer dollars for their product when the dollar is strong and more dollars when the currency is weak. The United States is the leading global corn producer, so it is unlikely that corn would be quoted in a different currency any time soon.
5. Climate – Climate can have a big effect on yields for corn crops. Moderate changes in weather patterns can increase the number of severely hot days in the growing season. These heat waves can dramatically reduce crop output and create price spikes.
Farmers continue to try and develop more heat-resistant strains of corn, and production may shift north into Canada. In the meantime, corn traders have to carefully monitor weather patterns.