Corn Could Be Headed to $8/bu. or Higher

By: Fran Howard

Severe flooding along the lower Mississippi River, a major thoroughfare for barges, and persistent planting delays in several top corn-producing states, have sent corn prices soaring. Already the relentless rain and cooler-than-normal temperatures in many of the top corn-producing states have convinced some analysts to reduce corn acreage estimates.

“We’re looking at 2.5 million to 3 million less acres planted around the Corn Belt compared with the Prospective Plantings report estimate,” says Peter Georgantones, Abbott Futures, Minneapolis. USDA’s Prospective Plantings report put corn acreage at 92.2 million, an increase of 4 million acres from 2010. Acres will be lost in Ohio, the Dakotas, Minnesota, Wisconsin, and along the lower Mississippi, he says.

“We’ll probably find acres in Iowa and Nebraska, but the carryout will be reduced to 600 to 650 million bushels from USDA’s estimated 900 million bushels,” Georgantones says. “That will put us in a very tight situation, similar to the past year.”

Georgantones thinks $8/bu. corn is almost a given. “It could be higher,” he says. Weather issues in Europe have delayed wheat planting there and severe drought in the southern Great Plains has created a dire situation for wheat, and wheat prices should provide additional support to corn. “Corn is on very solid footing right now,” Georgantones adds.

Adam Stout, risk management consultant for INTL/FCStone, Kansas City, says, “Most in the trade are anticipating anywhere between a 1.5-million to- 2-million acre decline from the Prospective Plantings report.” He argues that a lot of the anticipated reduction in acres is already priced into the market.

“July corn (May 18) is already 90 cents off its lows of May 12,” Stout notes.

“There’s been a shift in the discussion. The trade has gone from talking about planting delays and the impact on yields to planting delays and less acres.”

For new-crop corn to hit $8/bu., Stout says something more substantial than talk would need to move the market, such as hot, dry weather in the Corn Belt this summer or actual reductions in acreage in USDA’s upcoming supply and demand estimates.

As of May 15, corn planting progress in Ohio, a state plagued by surplus rain and soil moisture, was only 7% complete, and North Dakota growers only had 14% of their corn planted. Planting was also well behind the five-average planting pace in Indiana, Kentucky, Michigan, Minnesota, Wisconsin, Pennsylvania, South Dakota, and Tennessee.

 

Grain Shipping Woes

Flooding along the lower Mississippi and its tributaries in the Corn Belt has added to planting concerns and shipping issues. Barge traffic was halted temporarily on a 15-mile stretch of the lower Mississippi near Natchez, Miss., Tuesday. When it resumed, barges were limited to traveling one at a time and instructed to move as slowly as possible thorough the area.

In addition to the temporary suspension of barge traffic, many freight terminals along the lower Mississippi between Baton Rouge and New Orleans shut down May 17 because of high water. On a typical day, as many as 600 barges travel up and down the Mississippi, with each one capable of carrying the equivalent of 17 rail cars of grain.

“Not a lot of grain is moving on the river now,” says Jim Tarmann, field services director for the Illinois Corn Growers Association. If shipping delays or suspensions carry into June when grain shipments typically increase on the river, concern over delayed shipments will grow.

“Whenever the river shuts down anything moving north or south is delayed,” says Tarmann. “Those delays cost producers money as the cost associated with shipping goes up.” If grain shipments move to rail or truck, demand for those transportation services and their associated costs also rise.

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