April 3, 2007

 

Corn prices drop amid US farmers plan to increase acreage
 

 

Corn prices in Chicago plunged  within seven months after US farmers have declared to devote the biggest acreage for the crop in 63 years to take advantage of prices that rose to a 10-year high in February.

 

In a survey released March 30, farmers told the US Agriculture Department they plan to plant 90.5 million acres with corn, up 15 percent from last year as against analysts' projection of 12 percent. Farmers are adding acres after ethanol demand rose and federal crop insurance guaranteed them a record US$4 a bushel.

 

Large speculators held 299,715 more long positions than short positions as of March 27, government data show.

 

Corn futures for May delivery fell 19.75 cents, or 5.3 percent, to US$3.5475 a bushel on the Chicago Board of Trade, the biggest drop since August 11. Prices, which fell 10 percent the past two days, closed at the lowest since January 9. Futures have lost 21 percent since reaching a 10-year high at US$4.5025 on February 26 on expectations for a surge in corn plantings.

 

Corn also fell as a government report showed livestock feed demand slowing after prices rose to the February high. The USDA declared on March 30 that US corn supplies on March 1 were estimated at 6.07 billion bushels, 50 million higher than the analysts' projection of 300 million bushels in the marketing year which ends August 31. 

 

Corn prices for December delivery, after the harvest, fell the 20-cent exchange limit early, then recovered some of the loss on forecasts for a week of unusually cold weather beginning April 5. That would slow drying of fields left muddy by heavy rains last month and could lead to delays in sowing the crop.

 

Temperatures may average as much as 9 degrees Fahrenheit (5 degrees in Celsius) below normal the next 10 days, said David Salmon, a meteorologist for Weather Derivatives in Belton, Missouri.

 

Market analyst Dale Durcholz from AgriVisor Services Inc said current weather conditions may not affect ongoing corn plantation as well as affecting the crop's existing price levels.

 

December futures, the contract most commonly used for hedging production that will be harvested in October, fell 14 cents, or 3.7 percent, to US$3.695 a bushel. That contract, which fell 6.4 percent last week, reached a record US$4.295 on February 22 on speculation farmers will not plant enough corn to meet rising ethanol and livestock feed demand.

 

Corn is the biggest US crop, valued at a record US$33.8 billion in 2006.

 

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.