Why Corn Price Could Soar to $5 a Bushel as Supply Tighten

The price of corn rose sharply yesterday after the United States Department of Agriculture (USDA) released the World Agricultural Supply and Demand Estimates (WASDE). This is a monthly report that gives investors and farmers a forecast of the demand and supply of agricultural commodities. In the report, the department said that the production of corn is expected to fall sharply this year. Specifically, the department expects the production to decline by 1.4 billion bushels to 13.7 billion bushels. This will be the lowest level since 2016.

The United States is one of the biggest producers of corn. The crop is cultivated mostly in middle states like Minnesota, Wisconsin, Iowa, and Oklahoma among others. For the crops to grow, they need adequate rain, which should be balanced. Too little rain will not support the crop while a lot of rain will affect the planted crops. This year, the amount of rainfall in the so-called corn belt has been intense. It has been so big that it has been accompanied by a lot of flooding. This has made it impossible for the farmers to plant corn. It has also led to the destruction of the corn that was already planted. When this happens, it leads to reduced supplies. The statement added that:

With sharply lower supplies, use is projected to decline 425 million bushels to 14.3 billion, based on reductions to feed and residual use and exports. With supplies falling more than use, ending stocks are projected to decline 810 million bushels to 1.7 billion, which if realized would be the lowest since 2013/14. The season-average farm price is raised 50 cents to $3.80 per bushel.

Internationally, the department of agriculture expects the production to fall too. The chart below shows the recent trends in the corn industry from the USDA.

On the chart below, the price of corn rose sharply from a low of $4.08 a bushel to a high of $4.30. On the chart, the price is higher than the 25-day and 50-day moving averages while the RSI has moved above the overbought level. With the planting season passing fast, there is a likelihood that the price of corn will reach $5 a bushel later this year.

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