You ain’t seen nothing yet — analyst predicts $9 corn is on its way

AgResource says stocks are perilously tight 
and if more weather woes hit, 
“we don’t know how high is high”

Reuters – U.S. corn prices could rise to a record $9 a bushel in the next six months as global grain markets continue to feel the effects of severe weather disruptions, says Chicago-based consultancy AgResource Co.

The worst drought in half a century in the U.S., the world’s biggest corn grower and exporter, triggered a price rally that saw U.S. corn futures set a record at $8.49 a bushel in August, before falling back into the $7 to $7.50 range.

Tight global corn supply will be exacerbated by import needs in the European Union, which also suffered drought losses in its 2012 harvest, and this will help drive U.S. futures to the $9 landmark by May, said AgResource president Dan Basse.

And further weather woes could propel grain markets even higher, he said.

“We’re living on the edge in terms of grain supply,” he said. “We better have good weather next year. If we don’t have good weather, we don’t know how high is high.”

The continuing effects of the U.S. drought are already hampering emerging wheat plants, which recently set a new low for wheat crop ratings for this time of year, while heavy rainfall is delaying wheat sowing in major European producers France and the U.K.

Limited options

Corn import demand in the EU is expected to be between 10 million and 12 million tonnes in 2012-13, Basse said.

This would be as much as twice last season’s EU corn imports and the second-largest volume on record after the 14 million tonnes imported in 2007-08, when weather-affected harvests across the world sent prices soaring and sparked food riots in some poor countries.

However, in a world corn market showing the lowest stocks-to-use ratio in nearly 40 years, the EU may struggle to secure all the corn imports it needs from favoured suppliers Ukraine and Brazil, Basse said.

This could prompt the EU to import some American sorghum as an alternative livestock feed, he added.

Weather damage this year has also tightened supply in the world wheat market, providing little relief to tensions in corn.

“We think this is the year of corn, but wheat isn’t far behind,” Basse said.

Recent weather problems in Argentina and Australia have underlined limited supply among major exporters after poor crops in Black Sea producers like Russia and Ukraine.

The market is facing the prospect that some 30 million tonnes of wheat shipped by Black Sea and Southern Hemisphere exporters in the second half of last season may not be available from these sources in the latter half of 2012-13, Basse said.

The U.S. will cover some of this shortfall as the only major exporter with relatively comfortable stocks, but with the EU exporting at a fast pace in relation to its low stocks, the wheat market will have to ration demand, he said.

AgResource expects U.S. export prices will rise to a peak between $400 and $430 a tonne — versus the current $345 — by March for free-on-board rates in the U.S. Gulf to reflect demand for U.S. supply.

Despite high prices and limited supply, global grain demand remained strong, driven by Chinese-led growth in Asia.

“What we have is a supply-driven bull market with demand rationing occurring at the fringes,” Basse said. “We don’t see any evidence today that China is slowing down on its food consumption.”

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