Corn/ Maize

Aditya welekar 09bshyd0038Aamir Hazaria 09bshyd0314

Description• Maize is a type of cereal grain. In countries like United States,

Australia and Canada, it is known as corn.• It has a nutritional value for both animals and humans. The word

maize means “ one that sustains life” and also an Indian legend says that maize was the food of the gods that created the earth.

• It was first adopted and cultivated by the Latin American countries around 7000 years ago.

• Hybrid maize is one the variety of maize which generally have a high yield level and that is why it is most favored by the farmers.

• Another varieties of Maize are Sweet corn, Dent corn, Flint corn, Popcorn, Flour corn, Sweet corn and Pod corn

Corn as a commodity

• USA is the largest corn producing country Second being china followed by brazil and Argentina, USA is also the largest exporter of maize to the rest of the world.

• Corn is the most widely produced feed grain in the United States, accounting for more than 90 percent of total production.

• Around 80 million acres of land are planted with corn. The majority of the crop is used as livestock feed; the remainder is processed into a multitude of food and industrial products including starch, sweeteners such as high fructose corn syrup, corn oil, and ethanol for use as a fuel.

• As corn prices rise, agricultural companies stand to benefit as their corn or corn seeds command a higher price in the market. Companies who buy corn or derivative products such as high fructose corn syrup can be hit with much larger costs when corn prices rise

Corn price in USA

• Corn prices - which usually means the price of corn futures - are intimately tied to energy prices, because corn is used to make ethanol, an additive in gasoline.

• Corn prices peaked in June 2008 with the Iowa floods - at around $7.88 / bushel, then fell in late 2008 and early 2009 as commodity prices - and in particular oil prices - declined, a result of a slowing economy brought on by the 2008 Financial Crisis.

Corn price chart per bushel

Corn Historical Futures (CBOT) price Chart

Source: http://futures.tradingcharts.com/chart/CN/M

Why Corn Prices Rise or Fall

Factors affecting Corn prices:• Demand for Corn Based Ethanol.• Viability of Alternative Biofuels.• The Value of The U.S. Dollar (USD) Determines

Demand for Exports.• Demand for Animal Feed.• Weather

Why Corn Prices Rise or Fall: Demand for Ethanol

• Analysis from the International Food Policy Research estimates that rising demand for ethanol caused 40% of the rise in corn prices from 2007, and analysis from the CBO estimates that rising demand for ethanol caused 35% of the rise in corn prices in 2008.

• Rising demand for ethanol directly translates into rising demand for corn, at least until alternative biofuels become more price competitive.

Why Corn Prices Rise or Fall: Demand for Ethanol• Demand for ethanol is directly related to the ratio

between oil and corn prices – how much ethanol can be sold for (essentially the price of oil) divided by the cost to acquire corn (corn prices).

• If this ratio is higher than 90%, manufacturers will earn enough money to cover the cost of building an ethanol plant and to use it.

• However, governments across the world have implemented subsidies that make it profitable to produce ethanol even when that ratio is below 90%.

Source: www.usda.gov/

Why Corn Prices Rise or Fall: Demand for Ethanol• Because Ethanol is "grown" as corn rather than pumped out of the

ground, it is considered a form of renewable energy. • Because ethanol can help conserve gasoline and reduce air

pollution, several states in US, including California and New York, require that gasoline contain 10% ethanol.

• Legislation is pending in a number of other states. If the number of states requiring ethanol as an additive increases, or if the amount of ethanol that gasoline must contain increases, ethanol demand and therefore corn prices will increase.

• Government regulation in the U.S. has further buoyed corn prices. A tariff on imports of Brazilian ethanol, which is made from sugarcane, has increased demand for domestic, corn-based ethanol.

Why Corn Prices Rise or Fall: Viability of Alternative Biofuels• Demand for ethanol may be destroyed by the

development of a cheaper bio fuel. • One alternative receiving both attention and

research dollars is cellulosic ethanol, made from plant-based materials like wood and grass.

• The close to one billion dollars of Obama’s stimulus bills spent on advanced biofuels research will make these alternatives more viable, but will also likely increase demand for ethanol as a whole.

Why Corn Prices Rise or Fall• The Value of The U.S. Dollar (USD) Determines

Demand for Exports: The value of the dollar effects the price competitiveness of U.S. exports of corn. The depreciation of the dollar from 2006 to 2007 cause exports to rise 14%, which cause domestic corn prices to increase.

• Demand for Animal Feed: Approximately half of corn produced in the U.S. is used for animal feed.

• As living standards in developing countries increase, demand for meat increases, which increases demand for animal feed, which is made in part of corn

Why Corn Prices Rise or Fall

• The weather, in large part, determines the supply of corn. Particularly wet or dry seasons limit production, which in turn causes corn prices to increase.

• Conversely, when the weather is nice and crop yields are abundant, the price of corn decreases.

Corn Futures • Corn prices usually refer to corn futures - the price to buy a

bushel of corn to be delivered on a specific date in the future. The most commonly tracked corn futures are those on the Chicago Board of Options Trading, or CBOT.

• The CBOT tracks corn futures contracts by delivery date. The price of corn to be delivered in September of 2008 might differ from the price to be delivered in December of 2008, so there are different corn futures prices to track - one for each delivery date.

• The CBOT tracks corn futures for only five different delivery dates a year - in March, May, July, September and December (the last is known as "winter corn").

Corn Exchanges world scenario

• Corn is traded in an open outcry format and electronically through the– Chicago Mercantile Exchange (CME) Group (CME, e-CBOT)– Brazilian Mercantile and Futures Exchange (BM&F),– Mercado a Termino de Buenos Aires (MATba).– Dalian Commodity Exchange (DCE), Kansai Commodities

Exchange (KANEX).– National Commodity and Derivatives Exchange (NCDEX).• Maize (Yellow/Red) • Maize - Feed /Industrial Grade

– MCX India : Maize-Feed / Industrial Grade.– Tokyo Grain Exchange (TGE).

Corn Futures Contract specifications

Source: The Chicago Board of Trade's contract specification for Corn futures

Corn/Maize: Indian Scenario• India's maize production fluctuates between 10-14 million tons, with 80-90% of

the production being in the kharif season. • Major states that contribute in Maize productions are Karnataka, Andhra Pradesh,

Bihar, Punjab, Uttar Pradesh and Madhya Pradesh. • Around 6.5 million tons (roughly 50 % of total consumption) goes for feed use,

primarily for poultry feed. Another 1 million tons of corn is used by the starch industry.

• India is traditionally a maize importer, and Govt. permits a fixed quantity (determined each year) to be imported at 15%. Extra has to be imported at 50%.

• However, in 2003-04, India exported around 3-5 lakh tons of maize, mainly to Southeast Asian countries.

• Rising household incomes have shifted human consumption from maize to other cereals like rice and wheat. The rising incomes have also led to an increased consumption of meat, particularly of poultry, which has increased the demand for maize as feed.

Corn Production India

Factors that Affects Maize Prices• Role of weather in crop production is immense. Temperature, rainfall and soil

moisture are the important parameters that determine the crop condition. Further, natural calamities like typhoon, floods, droughts and earthquake can also affect crops. Markets keep watch of these developments.

• Changes in the minimum support prices (MSP) by the government also have immense impact on the prices of the commodity.

• Availability of substitute products at cheaper rate may lead to weakness in demand. This situation happens especially when the main products price tends to become higher. For e.g., jowar/ bajra may be preferred by poultry feed manufacturers instead of maize, if its prices are high.

• Seasonal cycles are present in agriculture crops, particularly in short duration annual crops. Price tends to be lower as harvesting progresses and produce starts coming into the market. At the time of sowing and before harvesting price tends to rise in view of tight supply situation.

• Breakthrough in the technology may increase the productivity and would lead to more supply. This may bring some softness in the price.

NCDEX futures contract specification

Name of Commodity Maize - Feed/Industrial Grade

Ticker symbol MAIZE

Trading System NCDEX Trading System

Basis Ex-warehouse Nizamabad inclusive of all taxes and fees

Unit of trading 10 MT

Delivery unit 10 MT

Quotation/base value Rs. Per Quintal

Tick size 50 Paise (0.50 Re)

Source: http://www.ncdex.com/product/Agro_product.aspx?comm=MAIZEINDS

Source: http://www.fas.usda.gov/psdonline/psdReport.aspx?hidReportRetrievalName=World+Corn+and+Barley%3a+Supply+and+Demand

World Corn production and consumption: Millions of Metric Tons/Hectares

US Corn Production

Corn TradeWhile the United States dominates world corn trade, exports account for only a relatively small portion of demand for U.S. corn—about 15 percent. This means that corn prices are largely determined by supply-and-demand relationships in the U.S. market, and the rest of the world must adjust to prevailing U.S. prices. This makes world corn trade and prices dependent on weather in the U.S. Corn Belt. However, Argentina, the second-largest corn exporter in most years, is in the Southern Hemisphere. Farmers there plant their corn after the size of the U.S. crop is known, providing a quick, market-oriented supply response to short U.S. crops. Several countries—including Brazil, Ukraine, Romania, and South Africa—have had significant corn exports when crops were large or international prices attractive.

Corn TradeJapan is the world's largest corn importer by far. While producing almost no coarse grains, Japan is a very large meat producer, so the country is a steady buyer of corn, with attention to quality. In recent years, Japanese imports of corn for livestock feed have stagnated, while imports for industrial use and starch manufacturing have increased. South Korea is the second-largest importer of corn in the world. South Korea is a price-conscious buyer, willing to switch to feed wheat or other coarse grains, and ready to buy corn from the cheapest source. Mexico is a growing importer. While a large corn producer, Mexico processes much of its production of white corn into human food products, but has turned to imported yellow corn and sorghum for livestock feed to support increased meat production.

Role of China• Over the past five years China has produced an average corn crop of

115,586 TMT. This makes China the second largest producer of corn in the world.

• China is also the second largest consumer of corn in the world, averaging a yearly consumption of 112,014 TMT. China on average has imported 944 TMT, and exported 4,560 TMT of corn. This makes China the world's fourth largest exporter of corn. China's ending stocks average for corn is 92,407 TMT, leaving China with the highest world ending stocks.

• China has been a significant source of uncertainty in world corn trade, swinging from being the second-largest exporter in some years to occasionally importing significant quantities.

• China's corn exports are largely a function of government export subsidies and tax rebates, because corn prices in China are mostly higher than those in the world market. Large corn stocks are expensive for the government to maintain, and Chinese corn export policy has fluctuated with little relationship to the country's production, making China's corn trade difficult to predict.

Corn Production China

Conclusion

• US is the worlds largest produces and consumer of corn. The weather conditions in US corn belt mostly decides the corn supply and prices.

• The use of corn in production of ethanol has increased the corn demand substantially. The development of alternative raw material for ethanol production will alter the corn demand and price.

• Developing countries increasing demand for food and meat will drive the demand for corn in coming years.

References• http://www.ers.usda.gov/Briefing/corn/trade.htm• http://www.crnindia.com/commodity/maize.html• http://futures.tradingcharts.com/chart/CN/M• http://www.usda.gov/• http://www.wikinvest.com/wiki/Corn_Prices#_note-CBOethanol• http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/corn_quotes_globex.html• http://www.mcxindia.com/SitePages/ContractSpecification.aspx?ProductCode=MAIZE-

FEED_/_INDUSTRIAL_GRADE• www.agricoop.nic.in

www.agmarknet.nic.inwww.imd.ernet.in

• http://www.commodityindia.com/commodities/grains.aspx • http://www.agricoop.nic.in/ • http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1273 • http://www.grains.org/corn • http://www.fas.usda.gov/psdonline/psdReport.aspx?hidReportRetrievalName• http://www.spectrumcommodities.com/education/commodity/statistics/corn.html

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