Our Supply of Corn Starch Remains Strong Despite Significant Drought
As many recent news reports have stated, we are in the midst of one of the worst droughts in decades. This has put a strain on the nation’s corn supply and is expecting to increase the price of many commodities. Just to be clear, we have a steady supply of corn starch, and we have no concerns about meeting demand. However, certain pressures are driving the cost up. We thought it was necessary to give you an idea on the status of the nation’s corn supply and what it means to our pricing.
Current Status
Last week the U.S. Agriculture Department predicted we might have the lowest average corn yield in more than 15 years. Corn futures are trading at more than $8 per bushel, the highest it’s been in memory.
To give you a better sense of what the market is seeing, we spoke with one of our suppliers, who are one of the world’s leading agricultural processors. They indicated that the current drought, coupled with a poor crop in 2011, has combined to be one of the worst two-year stretches in memory. They also expect the market to be extremely tight next year, which will be felt globally.
Corn Starch Prices Differ from Corn Prices
It’s important to understand that we don’t buy corn, at least not in the sense most people perceive it. The price you see for sweet corn at a grocery store or roadside stand is quite different than what we negotiate and buy from grain processors. Three key elements impact the price we pay: 1) the supply of corn; 2) the quality of corn; 3) the demand for other corn commodities.
As we’ve already mentioned, the drought is restricting supply. But when it comes to commodities, grain suppliers have a number of options of what to process at the mill. They can produce anything from corn syrup, corn oil and corn starch to dextrose, ethanol and a variety other commodities.
In regard to quality, corn is graded as excellent, good and poor. The lower the quality, the more energy it takes to produce a pound of starch. Although we won’t know exactly how this year’s crop will fair for a few more weeks, it’s hard to imagine it grading out well. Again, this drives the price up.
What Does it Mean For You?
Chemstar’s raw material strategy for corn starch has been to contract our annual supply at the peak of harvest when we feel pricing is at its best. This will secure a fair and consistent price for our customers and avoid the up and down fluctuations in the market.. Also, because we buy in significant volume, we have the ability to negotiate with our suppliers to get what we believe is the best pricing within our market. With all that said, it’s likely prices will increase due to supply restrictions. While the price of corn is at $8 per bushel, competitive products such as guar are still significantly higher.
How Can You Help?
We realize it’s difficult to predict, the more accurately you can forecast future demands, the better we’re able to buy at appropriate volumes. We want to reiterate that we have a strong supply of corn starch, and we aren’t concerned about future levels, although costs will likely rise due to these severe conditions.
-Jay O’Neill
Operations Manager