April 27, 2006

US corn prices low, but producers need to look out for La Nina
 

After a decade of low corn prices, livestock producers have taken corn prices for granted, analysts said.

Producers are putting more cattle into feedlots, betting that corn prices would go lower. Cattle futures brokers say few accounts now hold long corn positions to hedge against a rise in feeding costs.

But analysts caution that things could change if drought conditions hit the US this year.

Last year, drought did hit some areas of the US, but by a twist of fate, much of the corn belt emerged unscathed and the US still managed to produce a bumper crop.

Now, weather forecasters are keeping a lookout for signs of La Nina, which is often a harbinger of drought.

So far, there have been mixed readings, with present readings reversing earlier indications of La Nina.

Although the US Weather Service has announced that it does not expect La Nina this year, the same happened nearly 20 years ago, when La Nina came visiting at the most inopportune moments in July and August. 

Low corn prices are also leading to a three-month decline in live cattle futures prices, and sharply lower cattle prices are expected this summer.