Page 28 - MEX-Yearbook-2017

Commodity Insights

Corn

Introduction
The most common variety of corn traded on the commodity market is known
as field corn, or dent corn. This variety is higher in starch and lower in sugar
than table corn, which is another popular variety. Sweet corn is also popular,
but field corn is known to account for approximately 70% of the corn grown
in the United States, which itself produces over half of the world’s corn. There
are around 80 million acres dedicated to its production. The most striking
feature of corn as a commodity is that it is one of the world’s most versatile
agricultural products, with myriad uses and therefore a massive demand. This
is why it is sometimes colloquially referred to as ‘yellow gold’.
Corn has a wide variety of applications and so corn options are utilized by
many different business markets. Corn is primarily used as a food product for
animals, with livestock feed accounting for the largest portion of its market
share. Corn is also one of the core ingredients needed for the production of
ethanol, which is beginning to be widely used as an alternative to gasoline.
Others who trade in corn are companies that process it so that it may be made
into starch or corn oil, which can then be used to manufacture food products
such as margarine and industrial products like glue or paint.
America is the largest producer of corn, where corn exports are generally seen
as making the largest net contribution to the agricultural trade balance in the
U.S, and are thus hugely important to the American economy. However, an
interesting result of the American dominance of the corn market is that corn
prices worldwide are determined by relationships in the U.S market, leaving
the rest of the world to adjust accordingly. This allows farmers in countries
such as Argentina to plant their own corn after the size of the crop in America
has been learned, which results in a dynamic market response to any shortage
in American crops. Other countries such as Brazil, Ukraine, Romania and
South Africa have all been known to be major corn producers at various points
at time, with Japan being the world’s largest importer of corn.

Fundamental Facts • When trading in corn futures contracts, speculators also need to be aware
• Corn commodity prices can be affected by a wide range of factors, but of the viability of alternative biofuels, as although corn based ethanol
is currently the cheapest biofuel, the advent of a cheaper alternative
the two most important determiners of the price of corn options are the will usurp ethanol as the fuel of choice, and the demand for corn will
weather, as with any agricultural product, and the worldwide trend in subsequently decrease.
energy prices, as a result of corn being used in the production of ethanol.
• Any overly wet or dry season will limit the yield of the crop that a farmer
can harvest, whereas exemplary weather will make yields much larger,
decreasing corn’s price.

27 | MEX NEPAL YEAR BOOK 2017