May 28, 2008

Corn prices to remain high until Q1 2009

 

Worries of tight supplies and record high crude oil would keep corn prices at current high levels or even higher, Dutch bank Rabobank said on Tuesday (May 27, 2008).

 

Any realised yield reductions would result in further price increases, the bank said in its Soft Commodities monthly report.

 

"Stronger prices are expected towards the end of 2008 and first quarter 2009 as corn will need to buy back acreage from competing crops in the 2009/10 season.

 

Corn futures at the CBOT soared to record highs around US$6.72 per bushel in early May on growing concerns over delays in seeding in the crop in the US caused by persistent rains.

 

The bank also attributed high corn prices to the weaker dollar and inflation.

 

"However, there has been a significant structural change in the demand function for corn in recent seasons with almost one third of US corn produced in the 2008/09 season to be consumed to produce ethanol."

 

Record-high oil prices around US$135 a barrel that hit in May will only heighten demand expectation for ethanol, it said.

 

"World corn production is expected to exceed consumption for the first time in three years in 2007/08 resulting in a four percent increase in carry-out stocks," said the bank.

 

"However, the stocks-to-use ratio is forecast to fall to its lowest level in 35 years as global use continues to surge, largely due to burgeoning biofuel demand."

 

Rabobank also said it expected soybean prices to strengthen in 2009 as competition for acres with other crops increased.

 

CBOT soy contract for July delivery SN8 rose to US$13.90 per bushel, but was well below a record high of nearly US$16 per bushel in March.

 

In the wheat market, record world production was expected in 2008/09, with favourable weather conditions reported in Europe, the Black Sea region, India and Australia.

 

"Wheat prices are expected to move into a neutral stage following a significant pull-back in recent months.

 

"Prices are likely to find support in the final quarter of 2008 as attention in the corn and soy markets shifts to 2008/09 bringing wheat high."

 

US wheat futures have dropped to around US$7 per bushel since hitting a record high above US$13 in February.