Corn was in first found in North America, more specifically in Mexico, at least 7,000 years ago. Then it spread throughout the entire continent, until it was taken to Europe, where it served as food for poorer populations.

When the Portuguese arrived in Brazil, corn was already cultivated and consumed by the indigenous people. Nobody is quite sure how long it’s been present in Brazilian territory.

If in times past it was grown basically for human consumption, today (besides continuing to have much relevance in cooking) it’s also the raw material for many other products, such as food and beverages (popcorn and beer, for example). It’s also widely used in other industries, such as the manufacture of animal feed, pharmaceuticals, and biofuels.

The annual production of the grain in recent years has been more than 1.2 billion tons, according to the USDA. The estimate is to remain above 1.1 billion for the 22/23 harvest as well. With so much supply, this market also has several specific characteristics of its own, as we’ll see below.

The Corn Market: Main characteristics and how it works

Corn is a common, even traditional and typical, ingredient in many dishes and gastronomic areas. But according to hEDGEpoint’s Senior Grain and Animal Protein Analyst Pedro Schicchi, human consumption of this grain is small compared to global production figures.

“Today, the main products generated from corn are animal feed, especially used in pork production in China, and ethanol,” informs Schicchi. The ranking of the countries that produce the most are, in order: the United States, China, Brazil, and Argentina.

China consumes practically all the corn it produces, due to the country’s gigantic pig herd. “There’s a policy in China to produce 95% of all the corn used domestically. Even so, they need to import it to supply all the demand,” adds the specialist.

In the United States and Brazil, internal consumption is also high, but exports are an integral part of the demand. In the feed market, chickens, pigs, and cattle are the biggest consumers in the USA. In Brazil, cattle represent a smaller share, since they’re mostly grass-fed here.

In terms of exports, the USA leads, followed by Brazil and Argentina. The next country in this world ranking would be Ukraine, which has had its participation hindered by the war in recent years. The region is greatly favored by its geographical position, which makes it easier and cheaper to export to Europe and Asia.

The ethanol market also demands corn as a raw material, although in Brazil it’s not as common as cane-based production. Just like in the sugar market, there’s a dilemma: Should we use corn for food or fuel? This decision ends up happening through the prices that dictate which of these industries is able to offer a better purchase proposal, without damaging their margins, and of course, according to supply and demand.

 How does corn production work?

Corn is produced and consumed in many places around the world—unlike commodities such as soy, for example, which has its production and consumption concentrated in a smaller number of countries. Of course, there are still major corn players, which produce and export larger quantities, as is the case of the USA and Brazil.

Brazil is peculiar in terms of production because it has two harvests, as Thais Italiani, Market Intelligence Manager, highlights. Many producers plant soybeans in the summer and use the same area to plant corn in the winter as a form of crop rotation. Thus, after the soybean harvest (between late January and early March), the land is planted with corn. In mid-July, it’s already the start of the harvest. “It’s important to mention that in the last few years this second corn crop has grown expressively, giving Brazil a more important position in the global scenario,” the specialist says.

In the USA, corn is planted between April and May and is harvested from September to November.  “The U.S. plants its crop in April, together with the Brazilian ‘safrinha’ (second crop), coinciding with the grain filling period of Argentine corn.  The U.S. crop will emerge during the Brazilian/Argentine corn harvest period, and really comes just before the Argentine planting.  Each of these periods offers its own opportunity to manage risk from a production standpoint,” says John Payne, hEDGEpoint Relationship Manager.

“In addition to the risks that come with growing the crop, the price of traded corn is correlated to a variety of commodities,” Payne advises. Check out these relations:

• Sugar/crude oil/gasoline: Given the ethanol component also obtained through corn
• Natural gas: An input for fertilizers applied to corn that is, it’s reflected in the production cost)
• Soybeans: The main competitor by production area in the U.S. and Argentina
• Soybean Meal: Corn is used as feed in conjunction with soybean meal
• Soybean/corn oil: Corn oil competes with every market
• Wheat: A substitute for corn in feed rations, depending on prices
• Livestock: The main use of corn in the world

Thus, it’s possible and vital to use hedging operations in the transactions at every stage of the corn chain. There are many variables that influence prices and generate gains and losses, at the same time.

Why and how do you manage risks in the corn market?

Many political and economic factors that are still undecided affect the price formation of corn, whether in the near or more distant future. Expert John Payne warns us about some of them:

“Can Ukraine become a corn producer for the world again? Will Brazilian producers continue to increase their acreage and production in the coming cycles? Will U.S. ethanol policies change? Will China continue to be a global importer? These are all relevant and still unanswered questions.

“CBOT corn is a very liquid futures and options market, much more so than competing exchanges. It offers the ability to trade three years ahead,” Payne adds. Thus, hedging prices at the right time is the best strategy.

To hedge safely and strategically, the best option is to rely on a specialized partner such as hEDGEpoint. Besides using technology and specific tools to analyze future perspectives, the specialists have extensive knowledge about the most diverse commodities such as corn.

This allows us to offer customized services for each business, regardless of where it is in the commodity chain.

Talk to a hEDGEpoint expert today.