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$6.50 to $7.00 corn seen

02/14/2011 @ 1:31pm

Short supply, an acreage battle, and crop insurance levels will rule the corn market for late winter/early spring, one grain analyst says.

Figuring out which direction the corn market will head in late February through early spring is a little more uncertain, according to Jason Ward, Northstar Commodity Investment Company analyst.

Recently, Ward found that in the past 10 years (including the months between February 1 to April 1 where the corn market shows less of a price trend vs. soybeans in that same time frame), the soybean market pushed higher eight out of 10 years.

“So as we head to early spring, it’s worth noting that the seasonality of market trends leans less toward corn prices,” he says.

However, market watchers see plenty of supporting factors for upside corn-price potential.

Tight Stocks

Aside from an expected 2011 acreage battle, one of the key factors for the corn market is the current tightest stocks-to-use ratio since 1996. The U.S. corn carryout is well below the benchmark 1.0 billion bushels. And soybeans have fallen to a concerning sub 150 million bushels.

“Usually, we have high carryouts in February and March. That’s not the case this year,” Ward says.

With tight stocks, the market is relying on U.S. farmers adding 3 to 4 million acres in 2011. In 2010, the U.S. planted 88.2 million corn acres.

For corn, the U.S. farmers would have to plant 90 million acres and have a record crop in 2011. Otherwise, the already tight stocks carryout concerns remain, Ward says. “We need good yields, not just additional acres to build stocks.”

Because of short stocks, February trading could see the CME Group March and July corn futures contracts between $6.50 to $7.00 per bushel, according to Northstar Commodity Investment Company’s outlook.

Acreage Battle

Adding more U.S. 2012 corn and soybean acres is not impossible, just a little tricky, Ward says. Because numerous farmers grabbed the wheat insurance coverage, there is a way to boost both corn and soybean acres this spring.

“We have the worst winter wheat crop conditions since 2002. If we get to spring and the crop still lacks rain, those farmers will collect on that insurance, rip the wheat up, and plant either full-season corn or soybeans. That is the one way the U.S. increases its corn and soybean acres,” Ward says.

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