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Corn

As with soy beans, corn is widely produced and used, and its price is dependent on the demand for the products it is used to create.

Corn is used to make:

  • Food products
  • Animal feed
  • Biofuel
  • Industrial products

The price of corn may also be affected by environmental conditions and the effects on the corn crop, and the price of the US dollar. Corn is a truly global commodity: it is grown on every continent besides Antarctica. The United States, China, and Brazil lead the world in corn production; together, they produce 63% of the global corn crop (FAO, 2012).

Commodity Chain of Corn

Corn, also known as maize, was one of the first plants known to be cultivated by humans (Ranum, Pena-Rosas, & Garcia-Casal, 2014). No one is quite sure where it originated, but some popular theories suggest Mexico or the high Andes in South America (Ranum, Pena-Rosas, & Garcia-Casal, 2014). The indigenous tribes of Central America and Mexico were responsible for its proliferation through North and South America. 

Corn has been a staple of American agriculture ever since its adoption from the Native Americans. Its production steadily rose throughout the 1800s, but began to stagnate during the later part of the 19th century (Plumer, 2012). Concerned lawmakers put in place a series of agricultural initiatives focused on improving infrastructure– such as irrigation for dry areas and railroads to transport the commodity– to encourage increased production. However, it wasn’t until the 1930s that the corn market took off thanks to technological advances such as tractors and fertilizers. Since then, corn production has exploded.

Global Production of Corn

Corn is a truly global commodity: it is grown on every continent besides Antarctica. The Food and Agriculture Organization of the United Nations estimates that global production of corn was 875,226,630 tons in 2012. Although it is an affordable and scalable source of nutrition, many countries primarily grow corn for livestock feed (MAIZE, n. d.). The United States, China, and Brazil lead the world in corn production; together, they produce 63% of the global corn crop (FAO, 2012). 

U.S. Corn Production

However, trends in U.S. corn production are shifting. Over the past several decades, the ethanol sector has exploded. In the 1980s, ethanol production accounted for less than 1% of usage; that number is now at 42.8% (USDA, 2017). 

The Necessity of Subsidies

In 2016, U.S. corn production reached an all time high at 15.1 billion bushels. The ever increasing amount of corn production lead prices received for corn crops to drop by 23 cents in 2016 compared to the previous year, putting the price at $3.48 a bushel, an almost 50 percent decrease from the 2012 price of $6.67 (USDA, 2017). Government subsidies have enabled this massive production of corn by removing the financial consequences that individual farmers would normally face from overproduction.

However, as more corn is produced, farmers receive less money for the crop itself due to the flooded market, and the portion of their income that comes from government subsidies grows. This process of increasing government subsidy has been the main factor in the continually growing size of farms in the United States, and causes a host of problems ranging from soil depletion to economic and political issues such as unequal distribution of corn production throughout the world.

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Ethanol production

Ethanol is a biofuel created to help reduce dependency on fossil fuels. It is a grain alcohol that is mixed with gasoline, meaning that vehicles can use less petroleum. The demand for ethanol in recent years has been a driving force in the massive expansion of farms and GMO corn crops. Heavy subsidization of corn makes ethanol an inexpensive alternative fuel; however, it is not perfect. Aside from the fact that ethanol is rarely used as a fuel on its own, the large-scale style of farming used to produce it creates problems such as soil depletion due to mono-cropping, meaning increased fertilizer use. The corn varieties grown for ethanol are also inedible, though the waste products from the ethanol production process are used to feed livestock of every kind.

Livestock feed

Corn growers and the livestock industry have long had a beneficial relationship and continue to need each other to be a profitable and successful. Livestock producers need corn and corn co-products as feed, and corn growers need the market provided by livestock producers. Corn is the primary U.S. feed grain, accounting for more than 95% of total feed grain production and use (Rose, 2016). With the rise of concentrated animal feeding operations (CAFOs) and increasing feed cost, corn is a cheap alternative. As ethanol production continues to have a high capacity in response to the renewable fuel standard, corn, has become economically-valuable and can be fed to cattle (Rose, 2016).

Corn in Food

Corn used for food accounts for only about 10% of corn usage. Only a small fraction of that is whole corn. Most corn that we eat is hidden ingredients in processed foods. Things such as high fructose corn syrup, dextrose, vegetable oil, and corn starch are found in almost all processed foods today. Pick up any name brand snack item and you will almost certainly be able to find at least one ingredient derived from corn in it. 

Some processed foods containing high fructose corn syrup

U.S. Corn Exports

Although exports only account for 15% of corn usage in the U.S., they are still the biggest exporter in the world (USDA, 2017). This means that the U.S. market most often dictates the global market. Certain countries, such as Brazil, Ukraine, Romania, and South Africa, have been known to export large amounts of corn when the market is in their favor, but even then, market prices rely on the U.S. (Ranum, Pena-Rosas, & Garcia-Casal, 2014). 

Some of the biggest importers of American corn are Japan and Mexico. Although Mexico already produces a good deal of corn, it must import a significant amount due to large demand for livestock feed, as well as the importance of corn in their diet (a cornerstone, if you will) (Lyddon, 2016). Japan relies primarily on imports to feed its growing livestock sector, since they don’t have much room to produce the grain themselves (Ranum, Pena-Rosas, & Garcia-Casal, 2014).

Is corn a traded commodity?

Corn futures are one of the most widely-traded commodities futures products in the world. The corn product is the first domesticated and largest crop in the United States. Like other investments, corn futures prices fluctuate with supply, demand and speculation.

What are the big 4 commodity crops?

The most common commodity crops in the United States are corn, soybeans, and wheat; some areas also grow other commodities such as cotton, sorghum, tobacco, sugar beets, and non-wheat cereal grains. Today, about 62 cents of every commodity crop dollar comes from government subsidy.

Will corn prices go up in 2021?

The USDA forecast the average price of corn paid to farmers in 2021-22 (beginning Sept. 1, 2021) at $5.70 per bu, up 31% from $4.35 as the current year forecast and up 60% from $3.56 in 2019-2021), up 23% from this year and up 62% from 2019-20.

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Myanfx-edu does not provide tax, investment or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors.

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