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North American Trading & Logistics (NATL, natlcommodities.com) focuses on market timing, forward buying and formula pricing of cash commodities, and provides clients with strategies that effectively convert inventory and commodity volatility into increased savings and earnings. NATL's blog is intended to provide insight regarding cash/agricultural commodities, such as beef, poultry, pork, corn and cooking oil, and related topics, such as industry trends and market conditions. We welcome your feedback!
 

Corn Crops, Consumption and Cost

Sep 28, 2012

Corn Crops, Consumption & Costcorn usda

Will tight supplies keep commodity and
grocery prices high?

 

The December corn market has dropped by 82 cents in the last month from $8.38, at the close of 8/21/12, to $7.56, at close last week of $7.56 – a number that has bounced slightly and continues to hold at $7.56 (as of 9/28/12).

 

Drought impact continues and, according to a United States Department of Agriculture report, the country’s surplus corn stocks, totaling 988 million bushels in September, are 12% lower than they were a year ago. The corn crop has not materially improved and many are expecting the USDA’s yield estimates to drop in future reports.

 

1.    Has corn demand been rationed enough to justify the lower price or have hedge funds taken profits with a new wave of volatility to be expected just around the corner?

2.    Are price levels rationing predominately exports, and are domestic consumption levels going to remain strong? For example, current ethanol production appears to be sufficient enough to hit the USDA forecasted use of 4.5 billion bushels of corn.

3.    With corn and wheat prices at their current levels, the US is missing export sales, especially in wheat. At what price does wheat need to hit to be attractive to importers or for use in feed rations? Will price ration for non-fuel products?

 

While the corn harvest began early this year, supplies did not rise and demand has remained strong among exporters, livestock farmers and ethanol plants, as well as food producers who believe corn supply pressure and costs can be reduced if the U.S. Government is willing to relax federal corn-based ethanol mandates.

 

A number of state governors are petitioning the Obama administration to relax the mandates, which currently require that gasoline producers blend 15 billion gallons of ethanol into the nation’s gasoline supply by 2015, (Energy Independence and Security Act of 2007), but a decision has not yet been made.

 

Should the mandates be relaxed to help address corn shortages and rising food costs?

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