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More Demand, the Key to Higher Corn Prices

Hoosier Ag Today by: Gary Truitt

More Demand, the Key to Higher Corn Prices

Darrel Good
Darrel Good

Summer has arrived and so has the critical, three month period in which the nation’s food supply will be established. The commodity markets will follow weather conditions, crop ratings, and weather forecasts in order to form yield expectations. Yet, yield may be less of a market factor this year according to economists at the University of Illinois.

The economists are predicting a national average corn yield of 166 bpa.  While much of the corn in the Eastern Corn Belt was planted later than normal, overall the U.S. crop is not behind schedule compared to the long term average. U of I economist Darrel Good states, “We calculate that, over the past 30 years, 18% of the crop is typically planted after May 20.  This year 17% of the crop was planted after May 20.” So he says no yield reductions should be estimated because of a late planted crop.

The focus will now be on the condition of the crop and as we move through pollination there will be lots of guesses on yield. Yet, Good maintains that shifts in yield will not have much of an impact of the price of the crop, “Our modeling suggests that prices remain steady over a variety of stocks to use ratios.” He added this means that fluctuations in crop size do not have a major impact on price until the crop size gets extremely small.

He says the biggest factor that tends to influence price is demand, “Strong demand leads to high prices, while weak demand leads to lower prices.” Good said demand for corn has been weak for the past 2 years. The weather-reduced, Brazilian, corn harvest has recently provided some demand strength for U.S. corn and a modest price rally. Still, Good indicated summer weather could provide additional price strength, at least temporarily. He says stronger demand, in the form of more robust economic growth and higher livestock prices, would provide for a more permanent price increase.

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