A Corn(y) Investment Is The Right Move
Roni Stern | Oct 06, 2015 12:38PM ET
Maize, or by the name you probably know it, corn, is the most common growth worldwide followed by wheat and rice.
Corn is sown during winter time and is harvested in late summer; it needs a non-stop water supply and hot climates.
The progress in corn growing methods and the development of the complex resistance to pests species obtained by bio-technological treatment, along with the use of sophisticated computerized equipment, yielded larger crops of fine grains in a smaller land area.
Corn is the first of its scope in terms of crops in the United States, and the annual value amounted to 76.5 billion in 2011. The States produces about 40% of the global corn, consumes about 35%, and exports 61% of global corn exports. The main use of corn in the United States is as food for livestock, but there are also other uses. During the past 15 years, the ratio in corn uses has changed massively. So if in 2001, 75% was used in animal feed, and 8% for ethanol production, by 2011 only 44% was used as food for livestock and about 40% was used for ethanol.
Ethanol is the alcohol known to us all as the main ingredient of alcoholic beverages. It is currently used as an only component in fuel for cars or as a supplement to gasoline. Ethanol combustion is cleaner than the gasoline's and pollutes the air less. The addition of ethanol to gasoline increases the octane blend. A standard mixture of fuel stations in the United States consists of 90% gasoline and 10% ethanol. The aim is to increase the percentage of ethanol mixture, thus reducing the amount of imported oil.
In 2014, corn noted a price drop of more than 29% and most people like to put the blame for that on China. Both corn and wheat prices fell due to the improving technology and fertilization tools that made agricultural crops more successful. As well, each production cycle is more efficient when the weather is fine, and therefore the supply increased.
But if that is the case, how come we are noticing the movements in corn prices?
Well, the first reason is of course the growth of beef consumption in the US especially, and in the rest of the world as well.
The logic is very simple. When beef consumption grows, farmers must raise more cows, chickens and the rest of all those animals, which must eat before they finish as a stimulating steak on our plate.
The second reason is, in one word, China.
It was said that "Chinese consumption grew faster than GDP in the past," but now is lagging behind. Another headache is created that China, which drew raw materials, is becoming an exporter of stainless steel and aluminum, thanks to the abundance of power, continuous improvement technological capabilities and excess production capacity.
As a result, Chinese exporters have to rely on other goods for the purpose of growth. China consumers are demanding dairy products, chocolate and jewelry, and of course, meat, from the same kind that must be fed. Preferably with corn.
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It's easy to see that some things never change.
And while companies rise and fall, stock prices shoot up and drop and gold prices are suffering from a bipolar disorder, agricultural commodities will always be needed everywhere.
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