June 27, 2011

 

US Iowa corn crop in good condition but facing problems from abroad

 

 

The US' Iowa corn crop seems to be approaching the crucial silking and pollination stages in good shape, but it is the rest of the world that has lost its bearings.

 

Riots in Greece over the government austerity program have unsettled world commodity markets. China's annual flood has generated fresh rumors that a big, market-busting purchase of corn may be at hand.

 

Now Russia, absent from world grain export markets because of drought last year, says it is back in business.

 

So while Iowa's corn crop looks better than ever, it lost US$1.60 per bushel worth of value in the last two weeks. There's more at stake than usual with this year's crop.

 

If Iowa and the rest of the Corn Belt delivers a bumper crop this year, it can make progress toward rebuilding the nation's surplus grain stocks, which have dropped by one billion bushels to a 15-year low in the last 12 months.

 

As a consequence, corn prices have doubled, to the consternation of livestock feeders and ethanol producers.

 

So far, the only problem with the Iowa and US corn crops appears to be flooding on the Mississippi and Missouri rivers.

 

Neither situation has caused panic in the commodity markets, but their impact may be noted on Thursday (Jun 30) when the USDA issues its next crop acre and production report.

 

At current prices and expected yields, this year's Iowa corn crop carries a current paper cash value of about US$16 billion, some US$5 billion more than the 2010 crop and double what corn receipts were in Iowa as recently as 2006.

 

Corn typically accounts for half of Iowa's agricultural cash receipts from all grain crops and livestock. It not only provides the main cash transfusion to Iowa's farm machinery and seed industries, but is also the basis for farmland prices, which have risen by 25% in the last year.

 

A bigger crop on more acres would begin to relieve the pressure on US surplus grain stocks, which are pegged by the USDA at about one billion bushels less than the 1.8 billion bushels a year ago.

 

The June USDA report took down US corn acres by about two million to 90 million, well below the 92.2 million projected on March 31 and below the 94-95 million acres some analysts say is needed to rebuild US grain stocks.

 

Corn's July contract still trades almost 30 cents per bushel higher than wheat for only the second time since 1984.

 

But the December contracts for corn and wheat are back in their normal relationship. December corn closed at US$6.32 per bushel at the end of last week while wheat for the same month rose to US$7.14 per bushel.

 

Wheat normally trades US$1-US$2 per bushel higher than corn, which helps corn maintain its place as the prime livestock feed in the US and much of the world. An unusual premium for corn over wheat makes corn vulnerable to replacement as feed.