Earlier in this series, we saw that the global corn stock-to-use ratio fell slightly in October 2016—compared to the previous month. We also discussed how the ratio was significantly higher compared to the last four years.
The stock-to-use ratio reflects the relationship between supply and demand. Eventually, it impacts the prices of a commodity (MOO).
Corn prices on October 12 were 3.4% higher at $3.39 per bushel—compared to $3.27 per bushel in September 2016. Ideally, when the stock-to-use ratio falls over the month, the prices should move in the opposite direction—as you can see in the above chart.
Current global corn prices are ~12% lower compared to the prices on October 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 considering the high global corn stock-to-use ratio this year—as we saw earlier in the series.
An improvement in corn prices impacts farm income. It also impacts agricultural chemical companies (MOO) such as Terra Nitrogen (TNH), Monsanto (MON), Israel Chemicals (ICL), and Intrepid Potash (IPI). To put this in perspective, the net farm income in 2015 fell 38%, according to the U.S. Department of Agriculture. 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.