December has been a good month for corn – and other agricultural crops in general. This month alone, the price of corn has risen from $3.5 a bushel to more than $3.8, an 8% gain. The gains are mostly because of the meeting that happened between Donald Trump and China’s Xi Jinping at the G20 meeting. In the summit, the two leaders agreed that the trade war was not beneficial to the two countries. They also agreed to restart negotiations to resolve the issues. Already, China has announced that it will lower the tariffs on American cars from 40% to 15%. Trump has also hinted about a good statement that will be coming soon.
All this is important for corn and other agricultural crops for a number of reasons. First, the US is the biggest supplier of corn in the world. This happens because the country is has good weather, good soils, and advanced technologies that make growing corn. Second, China is the biggest purchaser of corn in the world. Most of this corn comes from the United States. Finally, most of US corn growing states voted positively for Trump. When the US placed tariffs on Chinese goods, China responded by placing tariffs on corn from the US, making it less attractive to Chinese buyers. Therefore, a deal between the two countries will increase the demand for corn.
Yesterday, the Department of Agriculture released the World Agricultural Supply and Demand Estimates (WASDE). The document said this about corn:
Global coarse grain production for 2018/19 is forecast 0.3 million tons higher to 1,373.6 million. The 2018/19 foreign coarse grain outlook is for larger production, and virtually unchanged consumption and ending stocks relative to last month. Foreign corn production is forecast higher with increases for Ukraine, the EU, and Thailand more than offsetting reductions for South Africa and Canada. EU corn production is higher reflecting a larger forecast for Romania. Ukraine corn production is raised based on harvest results to date, and if realized, this month’s yield forecast would surpass the previous record set during 2016/17 by nearly 20 percent. South Africa corn production is lowered as dry planting conditions are expected to reduce area. Canada corn output is down on declines in both area and yield. Corn exports are raised for Ukraine, but lowered for Mexico.
Therefore, with supplies rising and with no increase in the use, the recent rally is based on the perception that demand from China may start coming. This could happen though you should pay close attention to the news from China and the US. This is also probably the reason why the price of corn has been relatively unchanged after the WASDE report.