America’s bad corn harvest is giving prairie farmers a chance to mitigate their own production losses with higher prices.
Markets shot higher Oct. 8 as the U.S. Department of Agriculture found lower average corn, soybean and wheat yields, leading to perilously low 2010-11 ending stocks for corn and coarse grains around the world.
The USDA also predicted corn consumption would increase, creating a tightening grip on commercial users.
Rich Nelson of Allendale Inc. in McHenry, Illinois, said traders were stunned by the production cut and surprised by the demand number, causing prices to stampede higher.
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“This is below anybody’s guess, but at the same time USDA increased demand,” Nelson said.
“Typically a large drop in production means demand takes a small drop, too.”
With futures contracts in Chicago for corn, soybeans and wheat locked limit-up Oct. 8, the recent weakness in the major crop markets seemed to vanish as sentiment in favour of higher crop prices returned.
Canola prices rose $15 per tonne to close at $488.30 Oct. 8. Minneapolis spring wheat futures, which is the best approximation of the main type of wheat grown by prairie farmers, gained 58 cents per bu. to close at $764 US.
Analysts described it as a corn-led rally. That would have been no surprise to DTN analyst Darin Newsom, who the afternoon before the report was released said in a presentation that he thought corn was the most likely commodity to experience a significant rally this fall and winter.
“Of the three (main North American crops), it seems like corn right now again is starting to gain some momentum again,” Newsom said.
“The corn market is looking relatively strong as we set sail here in October.”
Fellow DTN analyst John Sarnow said Oct. 8 that corn was definitely the rally leader, and he saw few reasons why it wouldn’t stay strong in the week after Canadian Thanksgiving.
U.S. ending stocks-to-use ratio for corn is predicted to fall to 6.7 percent, which is the second smallest on record. World ending stocks-to-use of corn is estimated to be only 15.8 percent, which is the lowest on record. World coarse grain stocks-to-use are estimated to be 14.6 percent, which is also a record.
Sarnow said he wasn’t shocked by the report because harvesting problems have been rife across the U.S. Midwest.
“(However), this much this fast was a little surprising.”
In his pre-report presentation, Newsom said corn had good fundamental strength but he thought crop prices were being led higher more because of investment money pouring in as a hedge against the decline of the U.S. dollar than because of grain market fundamentals.
As well, investment money has flown more aggressively into crops than other commodities recently, and that’s not a trend to bet against.
As long as the money flows in, weaker fundamentals, if they appear, won’t matter much, Newsom said.
However, when the investment money begins leaving agricultural commodities, investors and farmers will need to act fast to protect market gains.
THE USDA SLASHES CORN YIELD AND ENDING STOCKS. SEE PAGES 22-23
