The corn market has been the “poster child” for the sharp increase in agricultural commodity prices that began last summer and extended into the spring of 2011. 

Higher corn prices were driven by a combination of shortfalls in crop production, including the U.S. corn crop, and strong demand.

Strong demand for U.S. corn has resulted from sharply higher energy and livestock prices, a large decline in foreign wheat production, a small decline in foreign coarse grain production, and a continuation of the weak U.S. currency.

Strong demand does not necessarily imply an increase in corn consumption. Instead, a strong demand scenario implies that end users are willing to use more corn than before at the same price or are willing to pay a higher price for the same level of consumption. 

Year-over-year consumption is expected to increase in the ethanol and by-product category. Feed and residual use and exports have been projected near the level of a year earlier. Steady to higher consumption at much higher prices reveals the demand strength.

The pattern of higher corn prices since June 30, 2010 included short periods of substantial price declines. July 2011 corn futures declined about $.50 in the last week of September 2010, $.90 in mid-November 2010, and $1.30 in the first half of March 2011.

Each period of decline was followed by new highs, with July futures reaching a peak of about $7.89 on April 11. The low price reached on May 6 was $1.09 below that peak.

The most recent price decline reflected a combination of factors influencing most agricultural markets and factors specific to the corn market. 

General factors included renewed concerns about economic recovery, some recovery in the value of the U.S. dollar, and lower crude oil prices. 

For the corn market specifically, commentary reflected expectations that the USDA would lower the projection of corn consumption and increase the projection of year ending stocks in the May 11 report of world supply and demand estimates.

There is not a strong case for adjustments in the projection of feed and residual use of corn. That projection was lowered in April, but no new consumption data will be available until the June 1 Grain Stocks report is released on June 30.