December 26, 2003

 

 

US Corn Prices Plummet Amid Worries of Reduced Beef Consumption

 

U.S. corn prices fell to two month lows on Wednesday amid worries of reduced beef consumption following the emergence of mad cow disease in the U.S.

 

About 55% of this marketing year's projected 10.3 billion bushel U.S. corn crop will be fed to U.S. animals, mainly cattle.

 

But grain analysts and traders expected corn prices to stabilize in the coming week, if there is only one confirmed case of mad cow, or bovine spongiform encephalopathy (BSE) -- a brain-wasting disease that has been linked to about 130 human deaths, mostly in Europe.

 

The first U.S. case of mad cow disease was found in a 4-year-old Holstein cow in Washington state, the U.S. Agriculture Department said on Tuesday.

 

"Consumers will likely shift from beef to other meats. Pork to a small extent, but really over to poultry," said Shawn McCambridge, an analyst with Prudential Securities.

 

Chickens are also big consumers of corn. Poultry production can expand quickly due to the shorter life cycle of chickens, analysts said. It takes 15 months for a calf to reach slaughter age, while it's only eight weeks for an egg to reach the broiler stage.

 

"So net-net, it could have just a very minimal impact on the U.S. balance sheet, with a possible slight decline in feed use," McCambridge added.

 

Demand for U.S. corn also remains strong due to a brisk export pace and record-breaking corn-based ethanol production, analysts said.

 

Chicago Board of Trade (CBOT) corn futures for March delivery (CH4) closed 8 cents per bushel lower, at $2.35-3/4, after falling 14-3/4 cents on the open to a session low of $2.29.

 

"These low prices are giving the end user an opportunity to buy," said Jason Roose, an analyst with U.S. Commodities in Des Moines, Iowa.

 

And that's exactly what commercial traders did on Wednesday. Grain companies, representing domestic livestock feeders, processors and exporters, actively bought corn futures at the day's lows, CBOT traders said.

 

Analysts expect CBOT March corn futures to trade between $2.35 to $2.54, coming back to the $2.40 to $2.45 range next week -- provided speculators limit their selling.

 

Large speculators, or commodity funds, hold a large net long position in CBOT corn futures, estimated at roughly 100,000 futures, traders said. That makes the market vulnerable to huge losses -- especially if it dips below Wednesday's low of $2.29.

 

CBOT floor traders estimated that funds sold about 25,000 corn futures during the shortened trading session on Wednesday.

 

"Right now, the fund long position is more of a threat than BSE to corn prices," McCambridge said.