The factors that move the price of corn

Despite the fact that supply and demand are factors that influence the price of corn, other variables, such as weather, also affect the price of the popular grain.

It is common to think that the supply and demand of corn worldwide is the main factor that moves grain prices; however, the reality is very different and there are several factors that influence their behavior.

But let’s start with the most obvious: supply and demand.

Last Friday and like every month, the United States Department of Agriculture (USDA) issued its report on supply and demand for the month of December, a report in which we already know definitively how the harvest of this crop turned out. cycle and that from this moment, it stops making important changes on the supply side, to be the demand that becomes the focus of attention of the market.

At the United States level, the USDA reported an estimate for the final inventories of the 22/23 cycle of 31.93 million tons, above what the market consensus expected of 31.55 million tons, and although it is true that they are less than those of last year, exceeded the expectations that were held at the beginning of the cycle, also showing that North American corn exports are located well below the expectations of the USDA itself, which is bearish corn.

To the above, we must add that the corn production estimates for Brazil left them at 126 million tons, while Argentina, and despite the drought problems they present, not only did not cut them, but placed them at 55 million tons, that is, 1.8 million above what was estimated by the majority of the market, which is also bearish for corn.

Finally, the USDA estimated that the final inventories worldwide for 2023 would be 298.4 million tons against the 300.8 million expected, just 2.4 million tons below the estimate, which in short, is not a figure that generates strong movements in the price, since throughout the year there was great volatility in prices, derived mainly from the affectations that the crop could have derived from the weather.

And speaking of the weather, this is another factor that undoubtedly affects price movements. The drought that occurred throughout the cycle in some areas of the corn belt and today in Argentina, has generated price volatility.

After the report without much regret or glory, corn managed to break a downward streak of 6 consecutive days, to close in the futures contract to March 2023, which is the one used as a reference by our farmers to market corn from the Spring-Summer cycle. Summer, at levels of 253.53 dollars/ton, advancing just 59 cents/ton.

The third very relevant factor is the monetary policy followed by central banks. The Federal Reserve of the United States, in an attempt to control the strong inflationary pressures that have been affecting its country, began an aggressive cycle of increases in its reference rate since last May, in which it has led the interest rate a range between 0.0 to 0.25% to one between 3.75 to 4.0%, and that according to the Fed rate futures, it is expected that this Wednesday it will increase it by another half percentage point to place it in a range of between 4.25 and 4.50 percent.

The foregoing causes liquidity in the markets to decrease and therefore funds (speculators) withdraw from the different markets, including those for raw materials. It is no coincidence that after touching levels of 318.69 dollars/ton last May, the month in which the Fed began the cycle of increases, the contract for March 2023 for corn has fallen 65.16 dollars/ton, equivalent to 20.44% with respect to at the close on Friday.

To this should be added the geopolitical conflicts in Europe and the price of fuel.

The situation does not look easy since the trend at the moment is clearly bearish, just at the moment when the PV harvest of our producers is being marketed.

aga@gamaa.com.mx