As I write this post, the current price of corn at my local elevator stands at $6.48 per bushel. That is a historically high price for corn, why? In no particular order, here are some observations.
1) Demand for corn. Look at this chart from Kansas State University showing demand for corn on a steady, even accelerated upward growth pattern for many years. In particular, note that in the decade of the 1990′s, corn usage grew about 1.5 billion bushels. In the 2000′s, corn usage grew 4 billion bushels. In other words, what was already good, solid growth tripled. And demand for corn is strong which is encouraging production.
2) Stocks, % of use, oh my! These complex concepts are very important when it comes to understanding the price of corn. This graph shows very clearly, the reason for corn’s price rise. There will simply be VERY little leftover corn at the end of the 2010 crop year, supplies are so tight that it is the market’s job to continue to push prices high enough to ration what little stocks will be left. That is why prices for corn today, are higher (in our case about $1 per bushel higher) than prices for fall harvest delivery. To give a perspective on today’s corn price, this historic yearly average price chart shows that corn has spent most of it’s time under $3, often $2.50 or less.
3) Ethanol. Many would argue that ethanol has been the primary factor for the increase in corn prices. Supply/demand issues, and speculating on the underlying causes of prices rising or falling is a difficult, complex issue. But I think we overplay the ethanol card often times when trying to understand the reason for the corn price rise.
4) More importantly, I think the rise of the price of corn can be pinned to a changing global environment, where basic commodities, be it oil, energy, or ag goods have increased value as many developing economies scramble to secure resources in order to feed, clothe, house, and basically provide for their people in the way that I expect to do for my family
5) While I have a generally positive agriculture outook, I’m also well aware that many, many times a new “golden era” of agriculture was dawning, only for the reality of overproduction and low prices to quickly follow. I well remember the need to “feed China” as recently as the previous spike in prices in 95/96.
What questions do you have about the price of corn?