Corn (ZC)

The are many factors that can influence the corn price as the market for corn comprises of 4 key markets. With the United States being the worlds largest producer of corn its largest consumption is through livestock, fuel, food and then exports respectfully.

The price for corn has not been immune to the affects of COVID 19 which has caused a sharp decline to the corn price by 15.9% since the 3rd of march (385.2) till now the 17th of April (323.8) this has resulted in the corn price to sit at a 13 year low.

Focusing on the two primary drivers of the corn price ethanol and livestock there are some interesting factors that may change your outlook on the corn market.

The market in the US for livestock is expected to grow based on the the recent 2020 report from the United States Department of agriculture. They have outlined that the number of grain consuming animal units that have increased from 102.84 million units in January 2020 to 103.2 in April 2020 up 0.36 million units from the start of the year. These numbers are expected to increase as demand for livestock increases due panic buying amid the corona virus and meat shortages. Increases in livestock will help increase demand for corn which has fallen quite significantly in recent months.

Recent export data from the US department of agriculture as of the 9th of April highlight that exports out of the U.S have fallen 54.8% falling to 20,819 metric tons from 32,248.2 metric tons from April last year. This could be attributed to the of the declining price of oil making bio fuel relatively more expensive than regular petroleum.

Ethanol is a vital part in determining the price of corn and is a bio-fuel that is produced from corn. As a result often the price of corn is closely correlated with the price of oil referring to the diagram below. 

Although oil demand is extremely weak in part due to COVID-19, the recent ending of the oil price war between Russia and Saudi Arabia and a deal made with OPEC plus to cut supply will potentially lead to an increase in the price of oil over time which would benefit ethanol thus the corn price. 

One thing that could increase the demand for corn could actually be the increase in demand for hand sanitiser. Ethanol is the primary ingredient in many hand sanitisers world wide, and with the high demand for hand sanitisers from COVID-19 this is only expected to increase the demand for ethanol as a result. 

The Corn price is currently sitting at its lowest price it has been at for 13 years, there is no doubt that the corn market has been rocked by the virus like most of the economy has. However it plays a vital role in the bio-fuel and livestock industry for the future. So for investors with a higher risk appetite this could be an opportunity trade corn at 13 year lows which may never happen again.

Disclosure: The Author of this article has no long or short position in Corn or corn futures. This is not to be considered as financial advice but as an opinion article.

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