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Stars are aligning for higher corn prices

Agriculture.com Staff 07/13/2006 @ 6:59am

With the USDA on Wednesday lowering its 2006-07 corn carryout, after recently lowering corn acres below trade expectations, some analysts see the stars lining up for higher corn prices in the long term.

USDA, in its July Supply/Demand report lowered 2006-07 corn carryout to 1.07 billion bushels, about 200 million bushels below trade expectations and 50 million bushels below its June estimate.

The USDA's U.S. 2006-2007 ending stocks estimate for soybeans was reduced from 655 to 560 million bushels.

Meanwhile, USDA's world 2006-2007 ending stocks estimate for corn was decreased from 92 to 91 million tons. Soybean stocks were cut from 58 to 53 million tons.

During a CBOT press briefing on Wednesday, Don Roose, U.S. Commodities, said the government report highlights the fact that the "corn for food or fuel" fight is on.

"The USDA increased last year's feed usage 100 million bushels, increased 2007 feed usage 100 million bushels, leaving ethanol 100 million bushels short. Plus, the average corn yield has been left at 149 bushels per acre. The big question is whether this number grows with the weather uncertainties," Roose said.

Roose said the big fight for corn is on. "We've got a big old-crop stocks figure to buffer us, but apparently not as big as we think."

Analysts see the U.S. in the process of transitioning from a supply market on old-crop to a demand-led market in the new-crop. Roose said increased demand would begin to add a risk premium for the corn market.

"It's becoming imperative we grow a large crop each year. And what's going to have to happen now is that we will have to buy acres for next year," Roose said.

Roose was quick to point out that short-term large supplies in old-crop stocks will keep a lid on prices, but as ethanol production ramps up, the stocks picture can change quickly.

Jerry Gidel, associate with North American Risk Management Services, agreed that the tightening corn stocks demonstrates the need for favorable weather for the new crop. Otherwise, the long-term prospects for higher corn prices are good.

"We really need to attract 3.0 million additional corn acres for next year to keep our carryover stocks around 1.0 billion bushels," Gidel said.

Gidel added, "So, we'll have a short-term reaction to this weather, and a pull-back on corn prices going into September/October, but Dec. 2007 and Dec. 2008 prices are reflecting what we are going to need to meet ethanol demand and domestic usage."

With the USDA on Wednesday lowering its 2006-07 corn carryout, after recently lowering corn acres below trade expectations, some analysts see the stars lining up for higher corn prices in the long term.

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