The price of corn, like the price of other commodities, is influenced by a wide array of factors that reflect a combination of current and expected supply and consumption.
"The market continually judges whether the price of corn is adequate to ration the available supply," explains Darrel Good, a University of Illinois ag economist. "Although expectations about demand over the course of the marketing year influence that judgment, the ongoing pace of consumption reveals the adjustments that are being made to accommodate the available supply."
A pace of consumption that cannot be supported implies the need for higher prices, whereas a slower pace than required implies the need for lower prices. In the current marketing year, the small U.S. crop requires a substantial reduction from the level of consumption in the 2011-12 marketing year, he adds.
"Based on the current forecast of the crop size, imports of 75 million bushels, and the assumption that year-ending stocks cannot be reduced below about 5% of consumption, corn consumption during the current marketing year will be limited to about 11.2 billion bushels," Good says. "That is 1.326 billion bushels (10.6%) less than was consumed in the previous marketing year."
The USDA has forecast a decline in consumption of 1.376 billion bushels and year-ending stocks slightly 5% of consumption. By category, the USDA has forecast that exports will decline by 393 million bushels (25.5%), corn for ethanol and byproducts will decline by 500 million bushels (10%), other processing uses will decline by 71 million bushels (5%), and feed and residual use will decline by 412 million bushels (9%), Good explains.