Why Corn Prices Are Lower in 2016



Corn prices

Previously, we discussed the stock-to-use ratio for corn for 2016 and compared it with the past four-year trend. The stock-to-use ratio, which reflects the relationship between supply and demand, impacts the prices of a commodity (XLB).

Let’s look at how corn prices are moving in 2016 in comparison with its previous four-year trend and stock-to-use ratio.

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Following the trend

Currently, corn is trading at around $3.80 per bushel, which is lower than the corn prices that traded in 2014 and higher than 2015’s corn prices. More recently, the price trajectory appears to be heading south, which could mean that the market is anticipating a larger supply of corn.

Lower crop prices not only affect fertilizer companies such as PotashCorp (POT), Mosaic (MOS), and CF Industries (CF), but they also affect seed companies such as Monsanto (MON).

Overall, corn prices were the highest in 2012 compared to the other years when corn’s 2012 stock-to-use ratio was also at its lowest point. This means that demand was higher than supply during 2012 in comparison with the other years in the chart above.

Between July and August 2012, corn prices shot up drastically as its stock-to-use ratio fell steeply.

Fast forward to the end of 2015, when corn’s stock-to-use ratio started peaking. This kept corn prices low, which extended into 2016 and sparked concerns as its trajectory is pointing to lower price realizations.


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