Post-Drought Corn Forecast

Spend Matters welcomes a guest post from Liliana Gonzalez of Mintec.

Corn prices increased sharply over the last summer. The Midwest experienced one of the worst droughts in history (though not as bad as the Dust Bowl of the 1930s or the back-to-back droughts of the 1950s), which ultimately led to a 13% drop in corn production. Prices have fallen by 10% since the start of 2013, as better-than-expected domestic stocks have lowered corn prices.

US maize stocks in March 2013 were 5.40 billion bushels, down only 10% year-on-year. Stocks had been expected to be significantly lower, possibly decreasing to 5.018 billion bushels. However, in 2012/13 there has been a 6% year-on-year decline in corn consumption, demand being limited by the high prices and tight supplies caused by the drought. Argentina’s new crop harvest is currently underway, which has put downward pressure on prices as Argentina’s corn is traded at a discount compared to US corn.

Looking ahead to the coming season, the area planted for corn in the US is expected to increase. The first planting reports have indicated that corn acreage is due to increase to 97.3m acres for the 2013/14 harvest, up 0.5 million acres from last season. This would be the largest planted area in the US since 1936, further adding to the bearish market trend.


The recent decline in corn prices is likely to raise demand from the animal feed industry, where the price relationship had led to the increased use of wheat in animal rations.

Weather conditions in the Midwest will continue to be a focus for prices as planting progresses. Recent rains forecast for the Midwest and High Plains regions should help to provide adequate levels of top soil moisture. However, more rain will be necessary throughout the rest of the season in order to obtain good yields in the Midwest areas that were badly affected by the drought last year. If the weather turns out to be the same as last year, however, better watch out for an even sharper price increase this summer as stocks decline ever further.

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