December has been a good month
for corn – and other agricultural crops in general. This month alone, the price
of corn has risen from $3.5 a bushel to more than $3.8, an 8% gain. The gains
are mostly because of the meeting that happened between Donald Trump and
China’s Xi Jinping at the G20 meeting. In the summit, the two leaders agreed that
the trade war was not beneficial to the two countries. They also agreed to restart
negotiations to resolve the issues. Already, China has announced that it will lower
the tariffs on American cars from 40% to 15%. Trump has also hinted about a
good statement that will be coming soon.
All this is important for corn
and other agricultural crops for a number of reasons. First, the US is the
biggest supplier of corn in the world. This happens because the country is has
good weather, good soils, and advanced technologies that make growing corn.
Second, China is the biggest purchaser of corn in the world. Most of this corn
comes from the United States. Finally, most of US corn growing states voted
positively for Trump. When the US placed tariffs on Chinese goods, China
responded by placing tariffs on corn from the US, making it less attractive to
Chinese buyers. Therefore, a deal between the two countries will increase the
demand for corn.
Yesterday, the Department of
Agriculture released the World Agricultural Supply and Demand Estimates
(WASDE). The document said this about corn:
Global coarse grain production for 2018/19 is forecast 0.3 million tons
higher to 1,373.6 million. The 2018/19 foreign coarse grain outlook is for
larger production, and virtually unchanged consumption and ending stocks
relative to last month. Foreign corn production is forecast higher with
increases for Ukraine, the EU, and Thailand more than offsetting reductions for
South Africa and Canada. EU corn production is higher reflecting a larger
forecast for Romania. Ukraine corn production is raised based on harvest
results to date, and if realized, this month’s yield forecast would surpass the
previous record set during 2016/17 by nearly 20 percent. South Africa corn
production is lowered as dry planting conditions are expected to reduce area.
Canada corn output is down on declines in both area and yield. Corn exports are
raised for Ukraine, but lowered for Mexico.
Therefore, with supplies rising
and with no increase in the use, the recent rally is based on the perception
that demand from China may start coming. This could happen though you should
pay close attention to the news from China and the US. This is also probably
the reason why the price of corn has been relatively unchanged after the WASDE