February 26, 2007

 

Corn demand puts great importance on 2007 acreage in the US

 

 

Increased demand forecasts for US corn are placing a greater importance on US corn acreage and growing conditions in 2007, as reflected by recent market gyrations on long term weather forecasts.

 

The sensitivity of market prices to weather when the heart of the planting season is weeks away brings to the forefront the need for ideal weather to produce record crop production in the US, said Shawn McCambridge, senior grains analyst with Prudential Financial in Chicago.

 

Speculative funds have taken a bullish stance in the market, with the general market theme to trade the long side heading into the planting season. The speculative impact on grain futures is no more pronounced than it is in Chicago Board of Trade corn futures, as bullish market sentiment has prices perched at 10-year highs.

 

CBOT March corn futures are currently trading at US$4.28 1/2, down from their contract high of US$4.35, but still trading at its highest level for a nearby contract since July 1996.

 

The market has shown upward mobility since September, as the demand for corn used for ethanol is projected to continue to grow over the next year.

 

Overall, the market is just in a bullish state, industry analysts said. They note sellers are unwilling to press the short side of the market, as the uncertainty of acreage and potential weather impacts on production will be key directives for prices over the next couple of months. Traders anticipate futures will experience volatile trade on through the planting and early growing stages of the 2007 crop, with traders keying in on weather forecasts to shape the course of trading.

 

Fears of a La Nina weather pattern emerging in the US has raised the level of fears in the marketplace, with talk of a wet spring delaying some corn plantings and hot, dry conditions heading into the key pollination period an underpinning feature.

 

Any chatter of potential hazards to plantings or production potential will continue to fuel bullish flames, a CBOT floor analyst said.

 

However, despite some private forecasters projecting a La Nina influence on Midwest weather. John Dee of Global Weather Monitoring said there is no way to make a forecast on a seasonal basis with reliability.

 

"There are signals of an La Nina developing, but we are currently in a neutral phase just coming off an El Nino, and it will take some time before we have a La Nina strong enough to impact the Midwest," said Dee. The La Nina could play on Midwest conditions in a couple of months, but there is no strong correlation between a La Nina and the Midwest to forecast a particular weather outlook, Dee said.

 

"These uncertainties are what will keep futures in a volatile state through the summer months, as the potential shortfalls in supplies and the need for price rationing in the event of production setbacks will keep funds comfortable sustaining market length," a CBOT floor analyst said.