What is in this article?:
- Corn industry outlook for 2nd half of 2010
- Frost in Northern China
A combination of factors, including a suspected weak Midwest corn harvest and increased demand from China are working in concert to keep corn trading near $5.20 a bushel. Resistance is expected at $6. Guest contributor Jennifer Gorton from Forex Traders looks at the numbers.
The busiest and most volatile season for corn is usually late summer and early fall as harvest numbers come in and give traders a clear perspective on supply and demand balance, and that is exactly what is happening in the corn market. Currently in mid-September, corn is trading very strongly at two-year highs above $5 and price has reached a high above $5.20.
Most analysts are expecting the $6 price level to curb demand and act as strong resistance. A clean break and close above the $6 level would technically open the door for much higher prices, but that is not likely to happen. The strong bullish movement in corn is a direct result of several factors that are pushing prices higher.
China's increased demand
The global recession of the last two years has transformed the Chinese economy. It is no secret that China has become more than an emerging market over the last ten years. In fact, China’s economy has grown so fast that it has now become one of the world’s largest and most powerful economies, and many economists and experts agree that China’s GDP will overtake the United States by 2030 or sooner. The heartbeat of China’s economy, however, is exports. Thus, China is heavily dependent on foreign demand. If foreign demand dips, then China’s economy faces major challenges.
During the last two years of global recession, China realized it cannot rely on its exports. As global recession devastated developed nations such as the United States, England, and the EuroZone, the demand in these struggling countries for Chinese goods and services likewise fell. Therefore, China realized that its domestic market needed to be developed. A fully developed domestic market would free China’s economy from relying so heavily on exports.
As China bolsters its domestic market, one area predicted to grow heavily has been China’s imports of corn. In fact, China demand is expected to surge exponentially over the next 5 years. This increased demand out of China is one reason corn prices have risen this year.