Corn up despite large US crop estimate

13 August 2008 21:02  [Source: ICIS news]

By David Rosen

HOUSTON (ICIS news)--Corn futures on Wednesday were resisting the downward pressure some market sources had expected to result from a US Department of Agriculture (USDA) report showing crops were more plentiful than previously forecast.

Corn for September delivery closed for the first time in three days above $5/bushel on Tuesday, the day the report was issued. And on Wednesday, the September contracts surged 30 cents to settle at $5.39/bushel on the Chicago Board of Trade (CBOT).

Futures prices were flirting with $8/bushel on the CBOT about a month and a half ago – making waves in corn-centric US markets ranging from ethanol to sortbitol and some fertilizers.

Corn then plummeted, largely because of a recent sell-off  in commodities and, to a lesser extent, in advance of Tuesday’s USDA report, which announced an increase in corn production forecasts from 11.7bn bushels to 12.3bn bushels.

The news would place downward pressure on the price of corn, since supply would be larger than expected. But instead, futures have gone up since the report has been issued.

Don Roose of Des Moines, Iowa-based US Commodities Inc said corn prices have gone up because the market had already factored in any difference the USDA report would have made.

“By the time you hit the number, it’s already dialled into the market,” Roose said.

Henry Merschman of Merschman Fertilizer, a retailer based in West Point, Iowa, also said previous decreases in corn prices had adjusted the market for any news from the USDA.

“It was all built into the market already. It was dropping and dropping and dropping,” Merschman said.

Increasing corn prices would lead to an increase in prices for ethanol and sorbitol, both of which are made strictly from corn in the US.

Crystalline sorbitol is currently trading at 77-82.5 cents/lb on a contract basis according to data from global chemical market intelligence service ICIS pricing. That contract price was negotiated at a time last year when corn was $4.40/bushel, a sorbitol producer said, and bargaining will begin in about a month for next year’s contract prices.

Demand for fertilizers, meanwhile, could stay stable, Merschman said.

If the crop was forecast to shrink, he said, more acres would be purchased to plant more corn, thereby consuming more fertilizers. But since the crop is bigger than previously expected, Merschman said, more fertilizer may be needed to replenish soil nutrients.

“I don’t know how the fertilizer guy can lose,” Merschman said.

($1 = €0.67)

Bookmark Simon Robinson’s Big Biofuels Blog for some independent thinking on biofuels
To discuss issues facing the chemical industry go to ICIS connect

By: David Rosen
713-525-2653

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly