Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Can Corn Commodity Prices Make a Comeback?

Commodities / Agricultural Commodities May 12, 2010 - 06:15 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleJason Simpkins writes: Corn prices have slumped some 24% since January and more than 50% since hitting a record high $7.65 a bushel in June 2008. Now they are being further threatened by potentially the largest corn harvest in history.

Still, there's reason to believe that corn prices will rebound.


The summer season could be particularly harsh following a better-than-average spring, and rumors that China is gearing up to make a huge purchase so far has helped keep corn prices afloat - and could even send them higher. But before that happens there are some substantial headwinds for the crop to overcome.

Warm, dry weather across America's Corn Belt has helped farmers get a jumpstart on the season. With 68% of their corn - about 60 million acres - already planted, U.S. farmers are operating at a record pace. In Iowa, the nation's biggest corn producer, farmers have already sown 85% of their crop. Traditionally, these farmers would only be half way through their planting.

"This year is the earliest I have ever planted corn," Mike Hornick, a lifelong Iowa farmer, told the Financial Times. "It was the earliest I ever finished. I'm real happy - there's a big smile on my face."

Farmers and agronomists say that an early planting season will hasten pollination and preempt the potentially damaging summer heat.

More than 13 billion bushels of corn are expected to come on to the market this year, and that's on top of the 2 billion bushels left over from last year's harvest. The positive outlook for the harvest drove corn prices down from $4.50 in January to $3.40 a bushel in March. However, futures have rebounded as of late, to about $3.75 a bushel.

Analysts and farmers alike recognize that there is the potential for a supply glut when the corn is harvested later this year, but they also believe that increased demand could salvage corn prices - perhaps taking them as high as $5.75 a bushel.

"The fundamentals for corn don't look very good right now," Gordon Wassanaar, an Iowa native who has worked 50 years as a farmer, told the Des Moines Register. "But we're in a different world from 10 or 20 years ago."

Why Corn Prices Could Stalk Higher
One of the things that recently changed is that China, the world's second largest producer and consumer of corn, is on its way to becoming a net importer of the grain.

The last time China was a net importer was 14 years ago, when drought reduced its crop. And a similar situation is unfolding this year. Chinese corn production plunged 13% last year because of drought. The country lost some 25 million tons of corn by some estimates, taking its production to a four-year low.

Dry, cold weather this year has slowed plantings, further threatening production. Current climatic conditions could reduce China's 2010 corn production by 1%.

China in April bought 115,000 tons of U.S. corn due for August delivery. That was the country's first significant purchase of U.S. corn since 2001.

"The possibilities are increasing that China will buy more corn from the U.S.," Jerry Gidel, a market analyst for North American Risk Management Services Inc. in Chicago, told Bloomberg. "U.S. corn looks pretty cheap."

The juiciest rumor, Don Roose of U.S. Commodities told the Des Moines Register, is that China will buy up to six cargo ships worth of corn, or about 14 million bushels, which equates to 392,156 tons.

"That still isn't enough to really move the market," Roose said. "But the psychology is what is important now."

The possibility alone that China will be forced to make another hefty purchase of U.S. corn has been enough to keep the market afloat in the face of adversity, according to Roose.

"We've had a strong dollar, a fall in the price of oil, and the prospect of a bumper crop on top of 2 billion bushels of surplus corn, but corn still held steady," he said.

What's more, though, is that there's still the possibility that this year's corn harvest won't meet expectations.

"I remain skeptical about the way the market approaches early-season prospects," said Lewis Hagedorn, an agricultural commodities analyst at JPMorgan Chase & Co. (NYSE: JPM).

Scott Irwin and Darrel Good, agricultural economists at the University of Illinois, told The FT that excellent weather conditions could result in a record 172.5 bushel-per-acre yield, pushing new crop farm-gate prices down to $3.20 a bushel. But poor weather late this year could cut yields to just 134.5 bushels per acre, sending prices to $5.75 a bushel.

However, regardless of the short-term gyrations, most analysts agree that prices will rise over the next year. Goldman Sachs Group Inc. (NYSE: GS), which sees corn prices holding at their current level of $3.75 a bushel for the next three months, predicts prices will surge to $4.50 over the next year. That's higher than a recent price of $4.12 for the May 2011 futures contract.

"We anticipate appreciation in corn prices over the next year owing to rising fuel-related demand and an expected return to trend yields, which will likely leave U.S. and global stocks-to-use ratios in decline." said the investment bank. "Current prices are providing a compelling opportunity for consumers to layer in upside protection."

Corn's stocks-to-use ratio is a gauge of supply and demand, and the "fuel-related" demand Goldman references is an allusion to the amount of ethanol that's blended with regular gasoline. The U.S. government could soon mandate that regular gasoline be comprised of 15% ethanol, up from 10% currently. That would introduce another 7 billion gallons of corn-fed fuel to the gasoline market.

Investors that want to avoid the more complex and volatile futures market could consider stakes in such agricultural producers as Corn Products International Inc. (NYSE: CPO) and Archer Daniels Midland Co. (NYSE: ADM), and Bunge Ltd. (NYSE: BG).

Source : http://moneymorning.com/2010/05/12/corn-prices-2/

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in