A year ago, corn sold for around $8.30 a bushel. Last Friday it closed at $4.65 a bushel and is trading down about 5% this morning at around $4.63 a bushel. And the trouble for farmers could be just beginning.
Demand for corn began rising in 2008, and U.S. corn producers began planting more of the crop. This year’s crop is expected to reach 14 billion bushels, up from 10.8 billion bushels in 2012 and 12.4 billion bushels in 2011. Last year’s crop was affected by the drought in the Midwest, but more moisture this year is driving up yields.
What U.S. farmers need is boost in demand. That may not come from some of the usual suspects. Cattle producers have culled herds as corn prices rose, and it will take a while for them to bring the herds back, even assuming that they want to do so. After all, prices for feeder cattle are stronger than they were a year ago and more cattle will just push the price down again.
Ethanol production, which takes about 40% of the U.S. corn crop, has hit a plateau where U.S. fuel consumption is falling as people drive less, pushing down demand for ethanol, and ultimately corn.
Another impact is the effect on farmland prices, which have zoomed upward in the past several years. The Wall Street Journal notes that cropland prices rose 80% in the past four years to nearly $7,000 an acre, but that prices have begun a decline since the beginning of this year.
The U.S. Department of Agriculture releases its monthly world agricultural assessment later today, and the report will be watched more closely than usual. Last month’s report on the global corn supply ended with this: “World corn stocks are expected to be the highest since 2001/02.”
- Commodity Markets