The first to be affected are the businesses of farmers, who last autumn made stocks, but will now earn less by selling the corn this spring.
A declining corn price also means lower costs for livestock farming businesses and implicitly a prospective decline in the price of meat.
The corn price further declined as a result of the collapse of international exchanges at the end of last week, following an announcement by the US, the largest player on the world’s farming market, that its corn stocks were above expectations.
On Monday futures contracts for corn with delivery in June traded at EUR227/ton, down 5.5% against the preceding session.
“The price declines on international markets are not yet fully seen in Romania. Trading in Europe is low because of the Catholic Easter Holiday. The rise of corn stocks shows the wait-and-see approach farmers have taken in the last two months,” explains Robert Arsene, general manager of Agricover, one of the top five grain traders on the Romanian market.
“In Romania too there are stocks of wheat and of corn of 300,000-400,000 tons each. A decline to a price of RON700/ton for corn sold by Romanian farmers is feasible,” he adds.
The 400,000 tons of corn stored account for around 8.5% of the crop harvested by farmers last autumn.
The steep decline in the price of corn that has occurred lately mainly affects the businesses of farmers who made corn stocks. They are the most exposed to price fluctuations since trading companies tend to conduct back-to-back transactions [they buy and sell on the same day in order to take their profit].
Amid a poor corn harvest, which overall was 55% lower than in 2011, agricultural producers who did not sell the corn straight after the harvest hoped that higher prices in the future would offset the quantitative loss.
But the current situation has proven their revenue estimates wrong and a simple calculation shows that if a farmer had sold 2,000 tons of corn straight after the harvest, they would have collected EUR500,000. Now the same amount is worth around EUR100,000 less, according to ZF calculations, based on market prices.
“The market has indeed gone down, but it will stabilize. Some of the production tends to be sold after the harvest at a reliable price and another part is kept as a reserve, what counts is how big the losses or the gains can be,” says Lucian Buzdugan, manager of a farm in the Great Braila Island, who adds he still has stocks of corn, without being more specific.
He also says despite the declining trend in the price of corn, the price will not fall dramatically. “We will never see the prices we had three years ago [EUR150-160 per ton of corn].”
The situation is atypical and significant liquidity should have been expected at this time.
“This is a time to wait and see, this time last year everyone was in the market. Prices are going down, but only to get the room they need for rises,” says in turn Adrian Porumboiu, owner of Racova Pan Group, who adds he will sow corn over 4,500 ha this year.
Despite corn price being on a decline, prices are still above those in the 2011-2012 farming year. For instance, the latest data made public by the Agriculture Ministry shows that at the end of March the price of a ton of corn was 24% higher than in March last year.
Last year’s corn harvest was around 5 million tons, down by almost 50% against the 2011 peak. Forecasts show this year farmers will sow corn on 2.73 million ha of land this spring, 5% more than in the preceding year.
(English version by Daniela Stoican)