Tuesday, April 5, 2011

Corn eclipses June 2008 High

Markets continue to gain momentum with wheat +65 for the week, corn +89, beans +36, canola +14. Corn prices are now at their highest price since June ’08. I actually remember this time well, I was in Indian Kashmir at the time, and a pharmacist asked me what agricultural commodities are going to do, “I told him get the hell out!” it eventually spiralled down to 320 by the end of the year!.

As highlighted in last week’s USDA stocks report, corn usage is not slowing down; the previous high prices are not choking off demand. Even with prices going down to 620c/bu a couple of weeks ago, there was a renewed surge in demand for corn. It is staggering to think that last years US crop was the third largest on record! Demand from the domestic ethanol industry and outside countries is continually getting bigger. At this ‘early’ stage US growers will need to plant a lot more then the anticipated 4.5% increase (total 92 million acres) to guarantee adequate stocks buffer (projected to reach a 15-year low of 675million bushels by the end of the marketing year on Aug. 31)

Which leads us to the global weather picture. I was over in Winnipeg over Christmas time, and they were talking about the potential spring flooding back then. Since that time, conditions have deteriorated with a late wet winter still prevailing over the Western prairies and Red river catchment. Also another large dump of snow occurred over the weekend (Profarmer Canada estimate another 30 cm of snow over key growing areas of Saskatchewan on the weekend). With an increase in projected corn acreage in the Dakotas (which will account for 1/3 of the increase in intended corn plantings), these areas may run into wet sowing conditions in the near term.

It is good to see some fundamental market direction back in the wheat market. Weather will be the daily focus for the next couple of weeks, with high temperatures (30+ in Northern Texas and central Kansas) last weekend in HRW regions again knocking back crop conditions. The USDA in their latest crop report rated 32% of the crop as poor to very poor, with the bulk of the poorer regions in key growing areas. Actually this was actually released after the market closed, so I would expect the electronic market to be trading higher today.

It will be interesting to see what unfolds in the next couple of weeks, but for the time being it seems wet cold weather will prevail in the north of the States/Canada (hampering sowing) and very dry to hot in the south (severely reducing HRW yields). With WA still very dry and reports that northern Europe and China (remember China!!) is getting low on moisture there is enough potential bullish news to keep the market well bid over the next couple of weeks.

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