Causality between corn production cost and cash corn price

Abstract

© 2017, Universidade Federal Rural de Pernambuco. All rights reserved. The correlation between the variable and total producers’ costs and a market price for corn was analysed in this paper. The production price of corn is changing every year and depends on the corn yields and input costs. Being familiar with the correlation between production price and cash price provides the forecast of corn price according to the forecast of the production price trends. The accurate forecast in price trends enables agricultural producers to sell their products „at the right time“, corn purchasers to purchase at the best prices, speculators on commodity exchanges to make high profits, etc. Furthermore, the results in corn production expressed in a relative relationship, i.e. the ratio between the production costs and incomes during one production year are shown in the presented analyses, avoiding on that way the inflation effects, which would otherwise be a significant element in 20 years study. Farmers can use the analyses in comparing their results in the production of corn with the USA average and thereby they can determine their competitiveness. The conducted analyses is showing that a production price has a high impact on the market price creation, so according to the work results, by bringing closer market prices to variable costs of production per product units, a further decline in price meets „the resistance“ caused by unwillingness of farmers to sell a product by a price close to achieved variable costs, but they prefer to store a product and postpone sale and thereby reduce supply and prevent further decline of prices. In case that prices increase significantly over the production cost, farmers make profit and supply of cereals grows and slows down further increase in prices. There was determined high correlation between operating costs per bushel and price (USD dollars per bushel at harvest), as well as total costs per bushel and price (USD dollars per bushel at harvest), regarding that an indicator of operating cost per bushel and price (USD dollars per bushel at harvest) has a higher degree of correlation and lower variability.