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Will Grain Prices Stay High? Grain Vs Corn Prices Post Covid : What is a Good Price For a Bushel of Corn?

Will Grain Prices Stay High? Grain Vs Corn Prices Post Covid : What is a Good Price For a Bushel of Corn?

Rye harvest on Gotland, Sweden, 1900–1910.

CORN

The price of corn in June 2020, during the initial stages of COVID-19, dropped significantly. Which was a great shock to traders, analysts, and consumers. Typically, the price of corn maintains a risk premium heading into the summer growing season in the US, but due to massive demand destruction and speculative capital taking a large short position, the price eroded very quickly.

As the main source of ethanol fuel is corn, and COVID-19 has changed the way we live, less driving has led to a dramatic drop in gasoline demand.  April 2020 was the trough in US gasoline demand, down 48 per cent versus the prior year.  In addition, most corn produced in the United States and globally is used for animal feed, that is, poultry, pig, and cattle production.  The latest figures suggest that about 65 percent of corn produced globally will be used for animal feed.  However, with many meatpacking plants in the US initially forced to close due to the spread of COVID-19. As a result, demand for corn feed plummeted.

With this drop in demand and corresponding drop in prices, the economic return on corn fell relative to other crops.  Corn production continued to fall in the following seasons.  A deliberate shift brought about by market forces.  The supply of corn is growing much faster than demand, reducing potential revenues for physical traders, warehouse operators, and shippers.  In contrast, competing crops, such as soybeans, wheat, and cotton, can make good economic returns.

Grain

While the international price of corn has fallen sharply, the FAO Cereal Price Index is now down only modestly, as the international price of wheat and rice has risen sharply.  International rice prices have risen 7.2 per cent since March 2020. Mainly due to Vietnam’s temporary export restrictions (which were subsequently lifted), while wheat prices rose 2.5 per cent on reports that the Russian Federation was rapidly using up its export quota. 

In its Cereal Supply and demand briefing in May 2020, FAO published its first forecast of global wheat supply and demand for the 2020/21 marketing season.  Global wheat production has a global forecast at 762.6 million tons, roughly unchanged from 2019.  Expected production reductions in the European Union, North Africa, Ukraine, and the United States will almost offset expected increases in Australia, Kazakhstan, the Russian Federation, and India.

Global wheat utilization is expected to remain stable in 2020/21, with growth in food consumption expected to outpace declines in feed and industrial use.  Moreover, wheat stocks should rise to 274.5 million tons. By the end of the 2021 harvest season. As a result of an expected surge in Wheat stocks in China. Even as stocks in the rest of the world expects a fall by nearly 5 per cent. To their lowest level since 2013.  Wheat production remains stable in 2020/21 but stocks are likely to grow further. 

Conclusion

Corn prices have a greater impact because it is a major source of ethanol fuel and animal feed. In contrast, the grain market has been less affected by the pandemic and the main price factor for the industry remains global demand.  Until 2020, global demand has been growing relative to the rate of production, probably spurred by deficit budgets around the world.  With COVID-19 having less impact on food prices than tight global stocks. Lastly, the sector not only harvested large quantities of food but also saw price increases towards the end of 2020. 

Written by Anyu Mei

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Will Grain Prices Stay High? Grain Vs Corn Prices Post Covid : What is a Good Price For a Bushel of Corn?