September 17, 2010

Global corn prices to hit US$5.50 a bushel

US 2010 record corn harvest is unlikely to prevent global prices from rising to a two-year high of US$5.50 per bushel in the next few months as demand firms up, an industry executive said Thursday (Sep 16).

"The strength in corn prices is being derived from demand rather than supply," said William Olthoff, president of Dutch Valley Growers Inc., an Illinois-based marketing cooperative.

Olthoff said there will be frequent spikes in prices at regular intervals towards US$5.50/bushel, supported by strong demand in key markets.

In its latest report, the USDA has estimated the country's corn crop around 334 million tonnes, up from 333 million tonnes in 2009, and 307 million tonnes in 2008.

"But predictions of such a large crop aren't dragging prices down because of a shortage of feed wheat that has pushed wheat prices up in recent months," Olthoff said.

With compound feed manufacturers around the world substituting wheat with corn, the US has been a major beneficiary. The US exports more than 50 million tonnes of corn annually.

Olthoff said US corn inventories at the end of the current marketing year to August 30, 2011, will only be around 28 million tonnes, at least five million tonnes below earlier projections, as more corn is used in feed production. Corn prices, therefore, have to rise further to prevent a shift in acres to wheat.

"The spurt in wheat prices has made (wheat) planting more attractive and if corn has to maintain its acreage, its prices will have to adjust to a much higher level," he said. US area under corn cultivation had risen by 1.5 million acres this year.

By February 2011, farmers will start deciding on their planting preferences and corn prices may rally during that period on speculation over a possible switch to wheat, Olthoff said. Prices are also rising due to concerns that yields are below expectations in Illinois, Iowa, Indiana, Ohio and Missouri.

"Excessive moisture due to heavy rains at the time of crop development has affected yields but they are still higher than last year," he noted.

Olthoff, who grows corn in Illinois said many farms in the region are getting a yield of around 180 bushel/acre this year, which is 5% below earlier expectations, but higher on year and well above the national average of around 165 bushel/acre.

Plantings started at least a month earlier than last year and the crop pollinated well before the seasonal rise in temperatures. Also, US production could have hit 340 million tonnes this year, had it not been for excessive rains during crop development.