October 31, 2006

Slow harvest pace and strong demand support CBOT corn prices

A slower-than-expected harvest pace due to substantial rain in the US Midwest have driven Chicago Board of Trade corn futures prices higher, said Goldman Sachs in a research note sent to clients Friday (Oct 30).

Corn prices climbed substantially during the week ended Oct 27, with the May 2007 contract up 14 1/4 cents to US$3.52 a bushel.

The most recent harvest progress report as of Oct 22 pegged the US corn harvest at 53 percent, 10 percent below year-ago levels and 4 percent below normal, the firm noted.

With additional rainfall occurring the during the week of Oct 23-27 in the US Midwest corn belt, harvest progress will likely continue to lag in the near-term, Goldman Sachs said in the report.

Even with the gain in corn prices, corn has yet to reach fair value estimates and have not yet fully priced in the historically low level of corn inventories, they said.

In addition, Goldman Sachs said, an expected improvement in ethanol emand based on forecasts for higher crude oil prices should support corn values with additional demand for corn coming from reduced availability of wheat used to feed animals.