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Why is Corn Valuable?
Corn, also known as maize, is a cereal grain native to Central America. It is a source of food for humans and animals, as well as being a key ingredient in fuel production.
Ancient farmers in the region that is now Southern Mexico first domesticated corn about 10,000 years ago.
However, European countries didn't discover the crop until 1492 when Christopher Columbus brought it back from Cuba.
A growing number of diverse industries use corn to produce their products, with annual production of the crop now exceeding that of rice and wheat. Therefore, corn plays a critical role in the world economy.
How is Corn Grown?
Corn is a member of the grass family and grows in diverse climates and regions around the world.
There are six varieties of the crop. All varieties grow in a similar manner. Farmers deposit seeds in an inch or two of soil and the seeds germinate in 5 to 12 days. The corn variety and soil temperature impact the timing of this process.
As the seeds sprout, they develop little leaves that resemble blades of grass. After further growth, the plants develop thick stalks and flat pointed leaves. Stalks can grow as high as 15 feet.
Once the stalks reach two-thirds of their full height, they begin the process of reproduction through pollination by wind. To ensure successful fertilization, farmers plant the seeds in short rows or blocks. This allows the silks from the female flowers to easily reach neighboring plants.
The Six Varieties of Corn
|Sweet corn||A naturally sweet variety that is harvested immaturely|
|Popcorn||Characterized by a hard outer shell and minimal soft starch content|
|Flour corn||One of the oldest varieties of corn with a soft starch content|
|Dent corn||Known as field corn, it accounts for 99% of US production|
|Flint corn||Characterized by a hard glassy outer shell and grown primarily in Central and South America|
|Pod corn||Grown mainly for ornamental purposes|
The timing of harvests can have a big impact on the flavor of the corn. Corn harvested during the earlier “milk” stage is characterized by its sweetness, while corn harvested in the later “dough” stage is characterized by its starchy interior.
Planting and harvesting seasons vary by region and climate conditions. In the United States, which is the largest corn producer, most corn grows in the plains of states of the Midwest. Planting occurs between April and June, and harvesting takes place between October and November. The southernmost regions generally plant first, while northern regions wait for the snow to melt and soil to thaw.
Corn can be rotated with other crops such as soybeans, so at the beginning of the planting season, farmers have to decide which crop to grow.
The corn-soybean spread is one tool farmers use to make this decision. This spread is the number of bushels of corn needed to buy a bushel of soybeans. When the ratio is below 2.2 to 1, corn is historically expensive, while a ratio above 2.4 to 1 signals historically expensive soybeans.
Top 10 Corn Producing Countries
|Rank||Flag||Country||Corn Produced (Million Metric Tons)|
|#1||United States of America||377.5|
Corn has many uses, and surprisingly, the most important ones do not involve food for humans. About two-thirds of corn produced in the United States goes to livestock feed and ethanol fuel.
Top 7 Uses of Corn
|Use of Corn||Description|
|Livestock Feed||Corn accounts for more than 95% of feed grain production in the United States.|
|Ethanol||Corn is the main feedstock used to produce ethanol, which is an important ingredient in gasoline.|
|High-Fructose Corn Syrup||This product made from corn starch is used to sweeten many products including ketchup, candies and soft drinks.|
|Corn Starch ||This kitchen ingredient is used to thicken sauces and is also a chemical additive in some medical products.|
|Cereal||Many breakfast cereals contain corn.|
|Alcoholic Beverages||Some whiskeys and spirits are made with corn.|
|Miscellaneous Uses||A diverse array of everyday items contain corn including:|
What Drives the Price of Corn?
The price of corn is usually highly correlated with the price of other agricultural products such as wheat and barley.
Furthermore, many of the economic factors that move corn prices specifically include:
- Ethanol Market
- Crude Oil Prices
- Chinese Demand
- The US Dollar
Corn is playing a growing role in ethanol production, so demand for this fuel additive could have a big impact on corn prices.
The US government heavily subsidizes corn farmers to boost ethanol production, and farmers make decisions about which crops to grow based on subsidies. If ethanol demand were to dissipate, then markets would have an excess supply of corn, and prices would likely head lower.
Crude Oil Prices
Because corn is increasingly being used to make fuels, its relationship with oil prices can’t be ignored.
A rise in crude oil prices would likely cause a rise in demand for biofuels as consumers switch to cheaper alternatives.
In fact, agricultural commodities used in fuel production have high price correlations with crude oil.
Analyzing corn prices without mentioning China would be a huge omission. China is the world’s largest consumer of energy and largest importer of petroleum. The country’s energy needs are expected to remain enormous as its economy continues to grow.
China is seeking out cheaper and more environmentally-friendly energy sources, and biofuels will play some role in this plan. Any slow down in growth in China could spell trouble for corn prices, while an uptick could lead to higher prices.
The US Dollar
As the world’s reserve currency, the dollar can often dictate the direction of commodity prices. When the value of the dollar drops against other currencies, it takes more dollars to purchase corn than it does when the price is high.
Put another way, sellers of corn get fewer dollars for their product when the dollar is strong and more dollars when the currency is weak. The United States is the leading global corn producer, so it is unlikely that corn would be quoted in a different currency any time soon.
Climate can have a big effect on yields for corn crops.
Moderate changes in weather patterns can increase the number of severely hot days in the growing season. These heat waves can dramatically reduce crop output and create price spikes.
Farmers continue to try and develop more heat-resistant strains of corn, and production may shift north into Canada. In the meantime, corn traders have to carefully monitor weather patterns.