October 30, 2006

 

Corn prices defy tradition in US state of Iowa
 

 

Iowa corn prices continued to climb, defying the long-standing tradition of slumping prices during harvest.

 

With the 2006 Iowa corn-crop expected to total about 2 billion bushels, even a 10-cent swing in corn prices, either way, would ripple throughout the state's economy, economists said.

 

Iowa is expected to produce one sixth of the US corn crop this year. 

 

This has left everybody from grain farmers, livestock feeders, ethanol manufacturers, economists wondering how high prices in the state would go.

 

Cash corn prices at some Iowa locations topped US$3 per bushel last week, double price levels a year ago and the highest harvest time cash market prices seen since 1995, said Don Roose, president of US Commodities in West Des Moines.

 

It was a case of contra-seasonal market, dangerous with explosive upward potential, he added.

 

As happened in the mid-1990s, many end users had waited for prices to hit harvest time lows before locking in prices on the grain they would need in 2007. Those buyers are now scrambling to capture prices before they went higher.

 

The trading price of December 2006 corn futures hit the contract low of US$2.33 per bushel. Futures prices typically were higher than cash prices, but the price fluctuations in the cash market tended to parallel those in futures markets.

 

Because of the volatility in the market, it could be rather challenging for grain elevator operators and others in the business of buying and selling corn, said Robert Wisner, an Iowa State University Extension economist.

 

End users who had not locked in prices for new-crop corn would be especially hit hard, he said.

 

Furthermore, federal subsidies are expected to decline if high corn prices continue into next year, felt analysts. Federal farm subsidies hit a record US$24.3 billion last year, but could decline this year and the next due to a public increasingly unwilling to finance a farming industry clearly reaping in profits. 

 

A smaller-than-expected US corn harvest was partially responsible for escalating prices. The USDA had adjusted corn crop estimates downwards from 11.1 billion bushels in September to 10.9 billion bushels by Oct 12.

 

Although this would mean US farmers were harvesting their second-largest corn crop ever, it would not be large enough to meet expected corn demand of 12 billion bushels, largely due to the booming biofuels sector. 

 

As existing ethanol plants were being expanded and new ones opened, demand for corn can only keep climbing.

 

Iowa, the nation's top corn producer, is also the top producer of corn-based ethanol, producing about one-third of the national total.