Fort Worth Star-Telegram

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Fort Worth Star-Telegram

July 11, 2006 Tuesday C; Pg. 3

Investors hope rising demand will turn cheap corn into gold

JEFF WILSON and SAIJEL KISHAN BLOOMBERG NEWS The September harvest in the U.S. will produce enough corn to fill every one of the thousands of Midwest silos, or cover South Carolina, West Virginia, Maryland and Rhode Island with an inch of grain. That prospect has money managers at Pacific Investment Management Co. and Ospraie Management LLC drooling. They're betting that the surplus will disappear within two years, causing prices to double for the first time in a decade. Consumers of corn are "going to have to compete with the rival demands of either fueling the world or feeding the world," said Dwight Anderson, who manages $4 billion at Ospraie in New York."We are going to see record agricultural profitability." Even after reaching an 11-month high of $2.7275 a bushel on the Chicago Board of Trade last week, corn is barely half the peak price of $5.135 set during the rally of 1995 1996, the last time prices doubled. Compared with other commodities, corn is a bargain. The cost of a barrel of oil is equal to 28.4 bushels of corn, compared with 4.7 bushels in June 1998. An ounce of gold will buy 238 bushels, more than double the 105 bushels in 1998. "Grains are cheap, cheap, cheap," said Brent Harris, who runs Pimco's $14 billion Real Return Strategy Fund in Newport Beach, Calif. "Ethanol demand is cranking up" and threats of crop damage from hot U.S. weather are increasing, Harris said. Rising gasoline prices, along with government subsidies and support of ethanol production, will help erode U.S. corn inventories that after this year's harvest will reach 12.736 billion bushels, the second-largest ever, the U.S. Department of Agriculture said. Prospects for the coming corn crop are deteriorating as temperatures rise and the sun bakes the Midwest. Iowa, the biggest corn and soybean grower, had its sixth driest May June period in 134 years, state climatologist Harry Hillaker said in Des Moines. June is normally the state's wettest month. A crop-damaging dry spell is likely, if not this year, then during the next three, said

Elwynn Taylor, a climatologist at Iowa State University.

A 19-year drought cycle will peak by 2009, said Taylor, who has studied 800-year-old cypress tree rings from Virginia and North Carolina to assess the pattern. The last major peak in the cycle came in 1988, when the U.S. corn crop was cut almost in half by hot, dry weather, Taylor said.

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