Should You Invest in Corn in 2020? A Look at the Different Factors

By: Robert Bell
Robert Bell
Having worked for years in the UK banking industry, I began writing and reporting financial markets after migrating abroad… read more.
on Mar 7, 2020
Updated: Apr 3, 2020
  • A rise in ethanol production could spark an increase in corn prices.
  • Coronavirus could be a factor but it is still unclear.
  • Ther current price appears to be on the low side.

Corn is a commodity whose price is affected by a number of factors. If you are thinking of diversifying your investment portfolio then this is certainly an interesting option in 2020.

The following are some of the reasons why this investing in corn could be a good move this year.

The Rise in Ethanol Production

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Ethanol production uses a lot of corn, although some producers use sugarcane instead. We can see that in 2012, the price of corn reached record highs due to increased demand for ethanol in the US.

Global demand for ethanol continues to increase. Between 2000 and 2007, production across the planet tripled. It is considered a renewable energy source and is widely used in Europe, the US and Brazil.

There are some signs that ethanol consumption could be on the way up soon. Earlier this week, the US Department of Agriculture announced the award of $100 million in grants for the bio-fuel industry.

It has been suggested that ethanol blend could reach 15% by 2030 and 30% by 2050. As the industry has been struggling in the US lately, this could be the start of a huge turnaround.

Another interesting piece of news early this year was that the biggest sugarcane processing plant in the world may add corn to the sugarcane that it uses to make ethanol. This is the Sao Martinho mill in Pradopolis, in the Sao Paolo region of Brazil.

Corn-based ethanol production is booming in other parts of the South American country. If they can sort out the logistics to make it viable in and around Sao Paolo then it would be another big step forward.

In Europe, there are some ambitious targets in place under the Renewable Energy Directive and Fuel Quality Directive. Each country has approached it differently, but the overall trend is for an increase in ethanol use.

The Chinese Market

The Chinese market is something that we need to take into account when discussing any commodity in 2020. The huge population and rising wealth levels here can cause a big impact in the price of any commodity.

For a start, production levels have dropped. This sector was just recovering from the trade war with the US when the coronavirus outbreak took hold.

The Chinese are interested in increasing their bio-fuel consumption. The growing wealth levels in the country also mean that more corn is needed to feed the greater number of livestock that is needed to meet the demand for meat.

Chinese corn production is dropping, as government policies see corn replaced by soybean plantations. Prices rose in China in 2019 and with consumption outstripping supply, this could be a key market to watch.

Summary

There are a lot of unknown factors to take into account here.   The price of corn has been dropping value lately, reaching around $3.80 or so for a bushel. At the start of 2012, it was at a record price of $8.

It might not hit those dizzy heights again anytime soon. However, there are enough signs of progress to make up think that the value of this commodity could be on the rise soon. Investors looking to protect themselves against the possibility of rising inflation may be particularly interested in this investment.

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