Corn (industrial maize) was one of the top five gainers last week, rising 4.26 per cent. Though the coarse grain has gained 7.43 in the past month, it has shed 37 per cent in the last 12 months.
The decline to multi-year lows since June last year has been mainly on the heels of estimates of a record global production during the current season to August.
From trying to keep its head above $4 a bushel during November-December, corn futures are currently steady above $4.50. Prices had run to a record $8.49 a year-and-a-half ago. On Monday, corn futures maturing for delivery on the Chicago Board of Trade pared some of their gains to rule at $4.55.
According to the US Department of Agriculture , global production is estimated at 966 million tonnes (mt) against 862 mt last season. Though consumption is seen rising by 0.8 mt to a record 943 mt, carryover stocks will be higher than last year at 157 mt (133 mt).
Why should prices rally then? There are a couple of reasons for corn’s current rally that is seen unsustainable. Corn prices have been rising in the last few weeks primarily due to cold weather affecting shipments in the US. Most of corn for exports is moved through barges on river to the nearest port. The weather has affected the movement. On the other hand, once weather clears up rivers will be flooded again posing a hurdle in transportation. Corn production in Argentina, a major exporter, is projected lower this year at 23.5 mt against 27 mt last year. And corn yield in Brazil is seen hit by the drought prevailing there. The unrest in Ukraine leading to fears of delay in shipments has also aided the bullish trend.
Changing preferences
Besides these developments, there are other reasons too. Some countries have found the lower corn price a boon to change their feed preferences. For example, Europe has begun exporting more wheat and to meet feed demand, it is importing more corn.
South Korea is buying more corn and less wheat for its feed requirement. Mexico, Vietnam, Saudi Arabica and Chile all have gone for higher imports of corn in view of lower prices. Though fund managers, hedge funds and investors were expecting fears of lower plantings to push up corn prices, things are not panning out exactly the same way.
USDA projections
During the weekend, the USDA pegged corn plantings at 92 million acres, lower than initial market expectations of 93.5 million acres. But the lower-than-expected projection of plantings has been offset by estimates of a higher yield. Besides, 92 million acres is the fourth largest in the last six decades.
Corn yields this year may increase 4.1 per cent to help production rise to a record 13.985 billion bushels. That is likely to leave a carryover stock of 2.111 billion bushels (each of 25.4 kg) in the US at the end of the next season (August 31, 2015).
This means, the average price that a corn farmer will earn will drop to $3.90 a bushel or $162.5 a tonne against $4.50 ($177a tonne) projected for this year, according to the USDA. This obviously means that corn’s rally is temporary and prices could come under pressure again.
Indian scenario
In the Indian scenario, production of maize is estimated at 21.06 mt this season to June against 21.76 mt last season. Exports are expected to be lower at three mt, though domestic use may increase on higher demand from the poultry sector. Prices are likely to rule below the minimum support level of ?1,310 a quintal.
On the National Commodities and Derivatives Exchange, maize May contracts were down at ?1,159 a quintal. Spot prices at Davengere, an important growing centre, are ruling at ?1,260 a quintal.
Source:- thehindubusinessline.com
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