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September 16, 2010 8:37 pm
A hot, wet Illinois summer has put veteran farmer David Adcock in a pessimistic mood.
He was expecting a bumper crop of corn when he planted 1,500 acres (600 hectares) early this spring. Conditions seemed perfect.
But halfway through his harvest, the results are not looking good. After relentless rain and stuffy nights that kept stalks from respiring, each acre is yielding 30 bushels less than normal.
“It’s a very disappointing crop,” he says from the cab of his John Deere combine. “It’s nothing like we expected.”
Mr Adcock is not alone. Across much of the US, the world’s largest grower and exporter of corn, forecasts for a spectacular 2010 crop are being reappraised. Markets have reacted, with corn futures surging 40 per cent since July 1, to a 23-month high of nearly $5 a bushel.
In a matter of months, the outlook has gone from rosy to tense. Rising corn markets threaten more expensive beef, pork and chicken, and are driving up the cost of making ethanol. They have also attracted hedge funds and other short-term speculators, and the size of the corn futures and options markets has grown 32 per cent since July on the Chicago Board of Trade.
“We saw an apex of complacency in the late spring and early summer,” says Lewis Hagedorn, agricultural commodities analyst at JPMorgan. Markets have since witnessed a “massive recalibration of sentiment and expectations”, he says.
The US Department of Agriculture estimates that the average US acre planted with corn will produce 162.5 bushels this harvest. Last week it lowered its previous estimate by 2.5 bushels. Many private forecasters hold a more negative view after visits to farms such as Mr Adcock’s.
The USDA, considered the gold standard in agricultural forecasting, still thinks this year’s crop will break records at 13.2bn bushels. But unanticipated sources of demand threaten to whittle down US corn inventories. The department sees the ratio of these stocks to demand at the lowest level in 15 years.
Russia’s ban on wheat exports after devastating drought has sent the world’s animal farmers searching for feed grains, including corn. China, for years self-sufficient in corn, is importing 1m tonnes annually. Because of these and other factors, US corn exports are expected to rise 7 per cent this year to 53.5m tonnes.
Fierce competition among US corn, wheat and soyabean exports has sent barge rates climbing, the USDA says. Tim Gallagher of Bunge, a global agricultural trader, says the main US grain terminals at New Orleans and the north-west Pacific coast are likely to run out of capacity after the harvest, forcing vessels to load at secondary ports.
“The US is the island of supply the world looks to,” says Dan Basse, president of researcher AgResource. “When you have shortages of feed wheat or barley, corn is by default the next grain of choice.”
Inside the US, ethanol refineries are also swallowing up more corn. Their output has jumped 21 per cent in the past year, due in part to government mandates. In spite of these bullish signs, the corn industry is still nervous about long-term consumption patterns.
This week the Corn Refiners Association, whose members include Archer Daniels Midland and Cargill, petitioned the US Food and Drug Administration to rename high fructose corn syrup as a more palatable “corn sugar” in an attempt to appeal to consumers worried about obesity.
Corn farmers have been the target of criticism of government subsidies but their business is still at the whim of volatile prices. Pam Johnson, who farms 2,700 acres in Iowa, locked in the sale of about 75 per cent of this year’s crop with the local wholesaler earlier this year at about $4 a bushel. While that is far less than current prices, she has no regrets.
“We have to have a disciplined approach to marketing. We are so driven as humans to be controlled by fear or greed,” she says.
Mr Adcock, in Illinois, committed to sell about half his crop to the local wholesaler. But when his harvest turned into a “mess”, he bought corn futures in Chicago on the assumption that his own crop disappointment would be widespread, pushing prices higher.
“Us farmers have the inside track on what’s going on. We know first,” he says.
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