Sunday, February 8, 2015

Fundamentals of Corn and Wheat Look Better Now

A few days ago I published a post on agriculture commodities - link is here. Today let me take a closer look at two grain commodities: wheat and corn.
Both commodities are in their medium term downtrends. But these days corn and wheat prices look like they are ahead of some correction to the upside or even ahead of starting a new uptrend.


According to USDA (United States Department of Agriculture) the world production in 2015/2014 season will outnumber the world consumption by 16.9 million metric tons. Simply put, the supply of corn will be higher than demand. The table below shows the difference between corn production and consumption  since the season 2009 / 2010. As you see, since 2011 / 2012 we have seen an overproduction of corn - this is not a good situation for those going long this commodity. In effect, the prices of corn have been trading in a range or trending down since 2011.

                                                                  source: USDA and Simple Digressions

In the ongoing season once again the USDA forecasts that there is going to be an oversupply of corn with the world production of 988.1 million metric tons and consumption of  971.2 million metric tons. It means supply outnumbering demand by 17.0 million metric tons.

But for the first time since the season 2010 / 2011 the demand for corn will grow by 2.07% while production should grow by only 0.38% - please, look at the table below:

                                                                  source: USDA and Simple Digressions

Let me picture these relations once again, this time with a chart below:

                                          source: USDA and Simple Digressions

This should suport the bull case of corn - despite the forecast that in the season 2014 / 2015 the supply should be still higher than demand, there are positive changes in corn fundamentals. Together with the probable bottoming process for a majority of commodities, in my opinion, the above numbers may be of some help for corn bulls.


It is a similar story to corn. In the season 2015 / 2014 the world wheat production is forecasted to outnumber the world wheat consumption by 10.2 million metric tons (production standing at 723.4 million metric tons  and consumption at 713.2 million metric tons).  But, similarly to corn,  demand for wheat will grow by 1.31% while production should grow by 1.12%. The difference is not big so wheat seems to be a worse bull play than corn but anyway the fundamentals for wheat are a little bit better for those going long this commodity.

                                                                       source: USDA and Simple Digressions

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