U.S. corn prices will keep rising to new highs over the coming months, a new Reuters poll has found, as demand from ranchers and ethanol makers proves better able to withstand record costs than many thought.
The forecasts will compound inflation concerns as higher feed costs filter through to beef and chicken prices. Analysts also warned that anything less than perfect growing weather for the spring crop could push prices even higher as traders fear tight conditions will extend well into next year.
Corn prices surged 15 per cent in the first four days of April, after the government reported inventories were far lower than expected as of March 1. The rally brought prices past their previous peak, at the height of the 2008 food crisis.
On Friday (April 8) the U.S. Department of Agriculture is set to further revise down its stocks at the end of this crop year, already the tightest since the 1930s.
Most forecasters expect corn prices to hit $8 a bushel or more, which would benefit farm equipment makers such as John Deere and fertilizer companies such as Mosaic but eating into profit margins for meat producers such as Smithfield and Tyson.
Nine of 15 analysts polled expected prices to be higher than the record high of $7.70-3/4 per bushel set Tuesday, with six saying prices would exceed $8 per bushel by the end of June (all figures US$).
Two were expecting prices to rise past $9 by the end of the second quarter. Six others were expecting prices to fall.
The recent spike in oil and commodity prices has fuelled inflation fears in the United States.
In the past three months, energy prices have surged by an annual pace of 29 percent and food prices by 14 per cent.
The rally has sharpened the focus on two imponderables: the price point at which livestock ranchers or ethanol makers will begin to cut back use, relieving demand pressures; so far, traders say there’s little evidence of this happening yet.
The other concern is whether the spring crop — sown on the second-largest set of acres since the Second World War — replenishes bins this fall. With inventories on a knife edge, there’s no margin of error.
“You have no room on the balance sheets for any weather problems,” said Hightower Report analyst Terry Roggensack.
“What are the odds we are going to go from now to the end of June without any weather hiccups? They are astronomical.”
ABN AMRO analyst Charlie Sernatinger had the highest second-quarter forecast — $9.75 a bushel. But he also sees the biggest fall to a low of $4.20 by December.
Besides the potential for rain delays to planting, the risk of spring flooding is high in many areas of the U.S. Corn Belt following heavy snowfall last winter.
The bullish price outlook could also attract more buying by investment funds, which would add fuel to any rally.
“It’s a tough year to predict. The long-range weather forecasts are calling for problems so chances are that we are going to stay firm and usually that means we peak in June or July,” said Jack Scoville, analyst with Price Futures Group. He saw a June or July peak of around $8.50.
Farmers are poised to plant the second largest area to corn this spring, so even average yields could result in the largest crop on record and depress prices in the second half of 2011.
At the midway point of the year, spot corn futures on the Chicago Board of Trade (CBOT) were pegged at $7.86 a bushel, according to an average of 15 estimates, with a range from $6.50 to $9.75. Most projections were between $8.00 and $8.50.
While soaring prices should theoretically begin to restrict demand from the ethanol, livestock and export sectors and limit the price upside, which sector will blink first is unclear.
High energy prices and strong demand for fuel may help keep ethanol producer margins profitable, and elevated meat prices may continue to propel demand from livestock operations.
Importers, meanwhile, have benefited from favorable exchange rates with the dollar near late 2009 lows.
The return of China to the world market remains a wild card. Any purchases by the commodities importing giant before the next U.S. harvest will squeeze an already tight balance sheet. But high inflation rates could temper Chinese demand.
China was forecast to import one million tonnes of corn in the current marketing year according to the latest U.S. Agriculture Department forecast. But recent China-linked sales and demand forecasts suggest an additional million to two million tonnes not on the latest USDA balance sheet.
— Additional reporting for Reuters by Manolo Serapio Jr. in Sydney, Gus Trompiz in Paris, Niu Shuping in Beijing and K.T. Arasu, Meredith Davis, Mark Weinraub, Sam Nelson, Suzanne Cosgrove and Julie Ingwersen in Chicago.