CNNMoney.com
04-03-07
Kernel of truth for corn
Rain and cold in the Midwest, coupled with falling prices, could put a damper on
the planting record fueled by ethanol demand.
Jeff Cox, CNNMoney.com contributing writer
NEW YORK (CNNMoney.com) -- The corn market figures to be as unpredictable
as, well, the weather over the next month or so.
So despite a U.S. Department of Agriculture report Friday that showed corn
planting will reach highs not seen since World War II, analysts say the next
several weeks could see a subtle shift by some farmers away from corn and back
into soybeans now that corn prices have fallen from historic levels.
The surging ethanol industry has pushed the swelling demand for the fuel's main
ingredient, corn, making it the most-watched commodity on the market.
"This market is very sensitive to new information. We're going to see more
volatility in a week's trading than in years past you'd see in a whole season," said
Bob Thompson, who is both an agriculture analyst and a farmer in western
Kansas. "Heightened sensitivity to news is the message."
The key USDA report showed farmers looking to plant 90.5 million acres of corn
this year, ahead even of optimistic projections that the amount would increase to
88 million acres from the 78 million planted in 2006. The pronounced growth is
attributed largely to demand from the ethanol industry.
Scarecrow's delight
Friday's news of nearly unprecedented supply immediately sent corn prices
plummeting 20 cents to $3.83 a bushel before loss-limiting rules on the Chicago
Board of Trade kicked in to halt trading. Monday brought huge losses as well,
with the price falling all the way to $3.54 a bushel, a 21 percent drop from the
high of $4.50 a bushel reached Feb. 26.
Prices settled Tuesday near unchanged.
Some analysts speculated that the price drop might change the thinking of some
farmers who had planned to shift their soybean plantings to corn. The two
commodities combine to make up 88 percent of all crops planted in the United
States.
Philippe de Lapérouse, director of global food and agribusiness for renewable
energy firm Soyatech, said his firm is cautioning its clients about the volatility of
the corn market and how it could affect the biofuels industry.
"We wouldn't be surprised to see some back off from corn planting," de
Lapérouse said. "There's a strong possibility that (the price drop) will persuade
growers to not shift out of soybeans, depending on what the market is telling
them."
Then there's always the weather, which also can influence prices and cause a
shift in planting intentions.
Better than ethanol
Should the cold, wet conditions throughout the Corn Belt continue well into April,
they could delay the start of planting season and reduce the total corn acreage.
In that case, prices likely would rise amid continued robust demand, particularly
from the biofuels industry, and lower than expected supplies.
Should the weather moderate, prices likely would hold steady or drop a little.
The short-term weather forecast for the Midwest isn't good.
Meteorologists predicted Tuesday to be the beginning of a fairly cold, wet snap
for the region that should last the next week or so. Fields generally need several
days to dry. Farmers then require seven to 10 days of practically round-the-clock
work to get their crops in the ground.
While it's far from time to panic, the weather situation bears watching.
"From experience, it's just too early to know" what effect the weather will have on
plantings, said Brad Rippey, a USDA meteorologist.
Not to worry, said Bruce Babcock, an economist at Iowa State University,
who said more sophisticated farming equipment helps farmers get their crops in
even with a narrow planting opportunity.
"There's always a window to get the crop planted," he said. "It may be a little
suboptimal conditions, but with these high prices the crop is going to get
planted."
A whole new world
Should the weather cooperate, this year's yield would hit 12 billion bushels,
according to an analysis Babcock performed. That scenario, which he gave a 70
percent chance of happening, would moderate prices. But if the weather stays
nasty and yields are lower, prices will rise, he said.
Bruce Battles, an agronomist with Golden Harvest Seeds, an agribusiness
division of Sygenta (Charts), also said he believes the initial corn plantings
projections are probably a bit high, with farmers likely to switch at least some
acreage back to soybeans. Prices are likely to remain around current levels, he
said.
Thompson, the Kansas farm owner, said that while corn's price may not maintain
its all-time high, the industry has entered a new world.
"I think you would find pretty widely shared consensus that corn prices have
moved into a new trading range," Thompson said. "It may not be $4.50 (a
bushel), but I don't think anybody thinks we're going back to $2.50 anytime
soon."