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    How does corn pricing work?

    Since there is a thread on how gas pricing works I thought I'd start a somewhat related thread on how corn pricing works.

    There is a record corn harvest. And yet corn prices had been rallying until recently. Now they are dropping.

    So who can explain corn prices?

    Links:
    Bloomberg.com: Worldwide


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    Re: How does corn pricing work?

    Supply - Demand
    Tight supply = high prices
    Demand high (Bio-Fuels/ethanol) = increased prices.

    Lower crude oil price = reduces demand for Bio-fuels/ethanol
    increases supply leads to lower prices.

    Value of the dollar: Cheap dollar = increased exports
    Strong dollar = reduces exports

    reduction/increase in Supply

    There are many other factors that come into play but that is the simple answer.

    Basically Econ 101


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    Re: How does corn pricing work?

    I will add the need to 'buy' acres of each crop for next year.


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    Re: How does corn pricing work?

    Speculation (not hedging/risk management) in the futures markets certainly plays a role - see corn/commodity prices last summer.



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    Re: How does corn pricing work?

    The reason grains increased as much as they have is the result of a perfect storm of events. It sort of began with the last few growing seasons of wheat on a worldwide basis. Wheat is the most used grain commodity on a worldwide basis whether it's food(pasta,bread), feed for livestock or byproducts. The 2006 and 2007 growing season seen droughts in Australia, India and other middle east countries. So worldwide supply of wheat fell to bad levels. Corn is the closest replacement for wheat so demand for corn took off so it could offset the wheat shortfall.

    During all this we are looking for ways to offset crude demand so we aren't so reliant on countries who'd just as soon destroy us as to help us out. Ethanol was developed and up until 2001 we have never used more then 800 million bushels to make ethanol. The ethanol mandate comes in and we go from 800 million bushels in 2001 to needing 3.6 billion bushels to produce ethanol for the 2009 crop. Last crop year we produced right around 12.1 billion bushel nationally so roughly 25% of US production.

    Then you have the stock market that has underperformed up until the last part of 2007(not to mention where we are at now) and fund managers are looking for a better return on their investment. Commodity funds become an option and all the sudden we have fund money(speculators) coming into commodities at record levels and off we fly. Meanwhile, areas such as India and China are becoming more industrialized and their demand for crude grows because they are driving many more vehicles. Then grain, which up until 2001 and before was being traded as a food product, becomes not only food but energy now because 25% of corn is being used for ethanol. Crude is a commodity also so the fund managers start throwing money into crude oil which makes crude take off to the record $147/barrel. This makes corn take off because of it's ties to energy and it peaks about the same time crude does at $7.36/bu on nearby contracts. This pulls soybeans higher also because of their tie with bio diesel as well as having to come up to compete for acres.

    Part of it is also Cyclical because you can look at nearby charts and see years like this coming around about every 20 yrs.

    Since July though, crude has plummeted down to the mid $30's per barrel, corn has come back to right now at $4 or under and soybeans are down below $10.

    Sorry for the book, but you asked and I couldn't dissapoint.


    Last edited by Cyclonesrule91; 01-12-2009 at 09:01 PM.

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    Re: How does corn pricing work?

    When I sell hte price goes up for the next 2 weeks. When I think about selling but dont the price goes down for 2 weeks.


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    Re: How does corn pricing work?

    Quote Originally Posted by kingcy View Post
    When I sell hte price goes up for the next 2 weeks. When I think about selling but dont the price goes down for 2 weeks.
    That's why you use a commodity broker so you can add to/protect your cash price using put and call options.....



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    Re: How does corn pricing work?

    Quote Originally Posted by kingcy View Post
    When I sell hte price goes up for the next 2 weeks. When I think about selling but dont the price goes down for 2 weeks.
    Please sell, I need a price increase.



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    Re: How does corn pricing work?

    Quote Originally Posted by Sparkplug View Post
    Please sell, I need a price increase.
    I should have sold Friday then.


    The gap in our economy is between what we have and what we think we ought to have--and that is a moral problem, not an economic one. - Paul Heyne

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    Re: How does corn pricing work?

    Today's USDA report for unkind to good grain prices. How they can add 2.8 bu/acre to the national yield over last years number with basically ideal conditions is beyond me. Taking corn carryout to almost 1.8 billion will not get us back to $5 corn anytime soon that is for sure.



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