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- CRB Fundamentals - 2008 Commodity Articles


Corn is a member of the grass family of plants and is a native grain of the American continents. Fossils of corn pollen that are over 80,000 years old have been found in lake sediment under Mexico City. Archaeological discoveries show that cultivated corn existed in the southwestern U.S. for at least 3,000 years, indicating that the indigenous people of the region cultivated corn as a food crop long before the Europeans reached the New World. Corn is a hardy plant that grows in many different areas of the world. It can grow at altitudes as low as sea level and as high as 12,000 feet in the South American Andes Mountains. Corn can also grow in tropical climates that receive up to 400 inches of rainfall per year, or in areas that receive only 12 inches of rainfall per year. Corn is used primarily as livestock feed in the United States and the rest of the world. Other uses for corn are alcohol additives for gasoline, adhesives, corn oil for cooking and margarine, sweeteners, and as food for humans. Corn is the largest crop in the U.S., both in terms of the value of the crop and of the acres planted.

The largest futures market for corn is at the Chicago Board of Trade. Corn futures also trade at the Bolsa de Mercadorias & Futuros (BM&F) in Brazil, the Budapest Commodity Exchange, the Marche a Terme International de France (MATIF), the Mercado a Termino de Buenos Aires in Argentina, the Kanmon Commodity Exchange (KCE) in Korea, and the Tokyo Grain Exchange (TGE). The CBOT futures contract calls for the delivery of 5000 bushels of No. 2 yellow corn at par contract price, No. 1 yellow at 1-1/2 cents per bushel over the contract price, or No. 3 yellow at 1-1/2 cents per bushel below the contract price.

Prices - Corn futures prices traded sideways to lower during the first half of 2007 but then trended higher from the 1-year low posted in July 2007 and closed the year up +16.7% at $4.55 per bushel. The U.S. corn crop size in 2007-08 was a record at 13.07 billion bushels (+24.7% y/y). However, the main factor driving corn prices higher in late 2007 was very strong demand from U.S. ethanol producers as U.S ethanol production had risen to a record of 489,000 barrels per day by the end of 2007 and is expected to increase further due to passage of new energy legislation in December 2007 calling for increased use of biofuels. With the record size U.S. corn crop for 2007-08, U.S. carry-over inventories increased +10.3% to 1.438 billion bushels. However, strong global demand pushed global carry-over stocks lower by -5% y/y to a 23-year low of 101.88 million metric tons. Strong foreign demand toward the latter half of 2007 coupled with carry-over support from record high wheat and soybean prices helped underpin corn prices. The falling U.S. dollar combined with record high crude oil prices added to the list of supporting factors for corn prices. As of March 2008, the market was worried that U.S. farmers may cut their corn planting acreage for the 2008 crop year due to the surging cost of fertilizer, as corn requires more nutrients than wheat or soybeans. While growing conditions as of early 2008 appeared favorable for the summer 2008 growing season, any glitches with hot or dry weather could cause prices to soar to new record highs above the current record high of $5.62 per bushel posted in March of 2008.

Supply - World production of corn in the 2006-07 (latest data available) marketing year fell by 0.3% to 692.886 million metric tons from the record high of 712.782 million metric tons seen in 2004-05. The world's largest corn producers are the U.S. with 39% of world production, China (21%), and Brazil (6%). Corn production in both China and Brazil has nearly doubled since 1980. Production in the U.S. over that time frame has risen by about 50%. The world area harvested with corn in 2006-07 rose +0.7% yr/yr to 303.5 million hectares, which was only mildly above the post-war record low of 293.0 million hectares seen in 2002-03. World ending stocks of corn and coarse grains in 2006-07 fell -28.3% to 119.3 million metric tons, which is a 3-decade low.

U.S. corn production in the 2006-07 marketing year (Sep-Aug) fell by -5.2% yr/yr to 10.535 billion bushels from the record level of 11.807 billion bushels seen in 2004-05. U.S. farmers harvested 70.648 million acres of corn for grain usage in 2006-07, which was down 5.9% from 2005-06 which was a 26-year high. U.S. Corn yield in 2006-07 rose +0.8% to 149.1 bushels per acre but still below the record high of 160.2 bushels per acre seen in 2004-05. U.S. carry-over stocks on June 1, 2007 fell -19.0% to 3.534 million bushels from 4.362 billion bushels in 2006. The largest corn producing states in the U.S. are Iowa with 19.8% of U.S. production in 2006, Illinois (18.1%), Nebraska (11.8%), Minnesota (10.7%), and Indiana (8.4%). The value of the U.S. corn crop in 2006-07 was $33.837 billion.

Demand - World consumption of corn and rough grains in 2006-07 rose by +2.42% yr/yr to 1,014.4 million metric tons, which was a new record high. The U.S. distribution tables for corn show that in 2007-08 the largest category of usage, aside from animal feed, is for ethanol production (alcohol fuel) with 3.400 billion bushels. That was up +58% from last year and is 71.3% of total non-feed usage. Corn usage for ethanol is more than five times the usage in 2000 and that usage category is likely to grow due to the high prices of crude oil and gasoline. After ethanol, the largest non-feed usage categories are for high fructose corn syrup (HFCS) with 10.8% of U.S. usage, corn starch (5.9%), glucose and dextrose sugars (5.18%), cereal and other corn products (4.4%), and alcoholic beverages (2.9%).

Trade - U.S. exports of corn in 2006-07 fell 3.5% yr/yr to 54.095 million metric tons, which remained far below the record high of 61.417 million metric tons posted in 1979-80.

The largest destination countries for U.S. corn exports are Japan, which accounted for 27.5% of U.S. corn exports in 2005-06, Mexico (16.4%), Taiwan (7.8) South Korea (7.2%), Egypt (6.5%), and Canada (4.0%).

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