Why Corn Prices Are Still Declining in September

Earlier in this series, we saw that the global corn stock-to-use ratio declined slightly in September 2016 compared with the previous month. We also discussed how the ratio was significantly higher compared with the last four years.

The stock-to-use ratio reflects the relationship between supply and demand, which eventually impacts the prices of a commodity (IYM).

Corn prices on September 12 were 1.6% higher at $3.30 per bushel compared to $3.20 per bushel in August 2016. Ideally, when the stock-to-use ratio increases over the month, the prices should move in the opposite direction.

Current global corn prices are ~12.6% lower when compared with prices on September 12, 2015. However, the global corn stock-to-use ratio was much lower in 2015. Global corn prices are significantly lower compared to the past four years, given the high global corn stock-to-use ratio this year, as we saw in the earlier part.

Lower crop prices impact farm income and in turn, affects agricultural chemical companies (NANR) such as Terra Nitrogen (TNH), Monsanto (MON), Israel Chemicals (ICL), and Intrepid Potash (IPI). To put this in perspective, net farm income in 2015 fell 38%, according to the USDA. Fertilizers’ average dollars per planted acre for wheat, corn, and soybeans fell 7.8%, 7.1%, and 6.5%, respectively, in 2015.

Next, we’ll discuss the global stock-to-use ratio for soybeans.