Tuesday, October 12, 2010

Corn Prices Surge

From the Financial Times:

The US Department of Agriculture on Friday cut its outlook for corn yields in the US, the world’s main exporter of the grain, by the most in decades in a “historic report”, according to Rich Feltes of brokers RJ O’Brien in Chicago. The government said the ratio of leftover stocks to demand will fall to a 15-year low in coming months.


Corn ended 5.2 per cent higher, bringing its two-day gain to 11.5 per cent. Such has been the sharpness of the move that policymakers are contemplating a repeat of the global food crisis of 2007-2008. Analysts have also started discussing the level at which prices could begin to shave consumption to bring it in line with supply.

“The market is going to try to ration demand wherever possible,” said Lewis Hagedorn, agricultural commodities analyst at JPMorgan.

Corn rises, along with similar gains in other commodities, suggested a battle for land among crops as farmers make planting plans. Chicago wheat futures initially gained 2.8 per cent on Monday before declining, while soyabeans rose 1.5 per cent and New York cotton futures hit a 15-year high. “These other crops need to compete with corn for acreage,” Mr Feltes said.

For more basic information on the crop, go here.

A few points, in no order of importance:

-- There was a story on the local news last night about this increasing meat prices because corn is a staple of cattle feed.

-- Corn is a staple of the Mexican diet (corn tortillas) -- a country which is already experiencing tremendous internal turmoil.

-- At some point this will start to have an impact on ethanol based fuel supply. I don't know what those levels are, but they could lead to raising fuel prices in the winter when fuel prices typically fall, adding further pressures to consumer spending during the holiday shopping season.

-- The lower dollar is probably adding to the market turmoil, as corn is priced in dollars.