August 31, 2010
US corn futures hit 15-month high
Corn futures in Chicago today climbed to a 15-month high at nearly US$4.30 a bushel, a price that in a few months may seem like a relative bargain for cattle and hog feeders.
As Russia's drought wreaks havoc with the global grain supply and demand balance and yield prospects in the US deteriorate, some brokers and analysts said corn is headed past US$5 a bushel, a level it has not traded above in more than two years, based on front-month futures.
Corn's summer rally is a growing worry for US beef and pork producers, who only earlier this year regained profits following at least two years of red ink. A spike in feed costs in 2008, when corn soared to records above US$7.60 a bushel, helped trigger an industry slump that prompted widespread herd liquidation.
In trading earlier, September corn futures at the CBOT rose 4 ½ cents to US$4.25 ¼ a bushel, after touching US$4.29 ¼, the highest for a front-month contract since June 2009, when prices reached US$4.50. Corn is up about 17% since the end of June.
Based on CBOT futures settlements on Monday (Aug 30), corn is expected to cost at least US$4.25 a bushel through 2012. Stronger exports have contributed to rising corn prices, and overseas demand for US grains is expected to strengthen further after drought slashed Russia's wheat harvest.
Additionally, traders are growing increasingly sceptical that this year's US corn harvest will live up to the lofty expectations from earlier this summer following excess rains and intense heat in parts of the Midwest.
Based on conditions as of August 1, the nation's corn crop is expected to yield a record average of 165 bushels an acre, the USDA said in a report earlier this month.
Smaller yields would likely prompt the USDA to reduce its outlook for this year's corn harvest, which USDA earlier this month projected at 13.365 billion bushels, up 1.9% from the 2009 crop and an all-time high. The USDA is scheduled to release its next Crop Production report September 10.
The corn rally comes as surging beef and pork prices fuel concern whether consumers will pay for pricier foods, such as steaks, with unemployment near 27-year highs.
Still, beef and pork producers remain generally profitable and prices for slaughter-ready animals are expected to stay high enough into the first half of 2011 that corn would have to surge well above US$5 a bushel before profits evaporate, analysts said.
Following the losses of 2008 and 2009, the livestock industry contracted herds to adjust for corn at US$4 a bushel and higher, analysts said.
For pork producers, the outlook "remains optimistic" through next summer, with slaughter hog prices expected to drop to around US$53 per hundred pounds during the fall and winter before rising to US$57 in the second quarter of 2011.
