From the June 2013 issue of Futures Magazine • Subscribe!

Quick and easy guide to summer grain trading

World demand

Continued increases in world demand have exaggerated the price impact felt from recent supply problems. Consumers in developing countries have seen sharp increases in purchasing power and are spending it on food choices.

Oilseeds are the main agricultural area to feel the impact of higher world incomes. Per-capita world demand for vegetable oils has grown 17% in the past five years (see “Insatiable,” below). This is on top of normal population growth, so it is highly significant. Any rebounds in world soybean production in 2013 only will be able to ease the tight supply situation. It’s doubtful there will be burdensome oilseed stocks.

For corn and wheat, the situation is different. Demand simply is not at the same levels. Producers still have the potential to outpace world demand.

Energy connection

One of the more interesting plays for corn is its use as a fuel source. (For more on this topic, see “Energy leaders and followers.”) Roughly 9.5% of the nation’s gasoline is ethanol. That’s significant because ethanol production makes up 40% of the nation’s corn demand.

In previous years, sharp rallies or declines in energy prices helped to raise or lower corn prices, and it’s likely this will continue. However, in 2013, this price relationship may not be easy for the beginning grain trader to follow because of the decline occurring for gasoline as well as limits to ethanol blending. This means the normally positive relationship between energy and corn prices may not hold true.

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