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Archive for February, 2012

KOFI AMOABIN

Project Number #2

Year Without a Winter but don’t Count on Higher Corn Prices, Not Yet

Drought conditions in the Midwest could mean higher prices for corn than in the previous year, but don’t count on the record warm temperatures and lack of snow as a fait accompli.

The United States Department of Agriculture, in its crop production report for February, called this winter ‘ year without a winter’. USDA explained that this winter, other than Florida and the Pacific Northwest, temperatures have stayed above normal across the U.S. Commodities prices respond to weather patterns that fall outside the norm.

Commodity Traders and farmers are speculating on what the above normal temperatures and lack of snow cover in the Midwest mean for the price of corn, which traded last June at a record high price of eight dollars a bushel.  Farmers use the amount of snow cover during the winter to predict the level of moisture in the soil during the planting season. Already, there is speculation of a drought this spring.

“The seriousness of the dryness or lack of moisture cannot be determined till the planting season, which is April, May and June,” said Anthony Prillaman of National Agriculture Statistics Service, a division of United States Department of Agriculture.

A drought in the spring will hurt corn crop development and lead to a lower production figure, much less than the 313 Million metric tons harvested in the U.S. in 2011. Normally, a lower production of corn in 2012 than in 2011 will mean higher prices in 2012, and vice versa.

The price of corn is influenced by production across the world and not just the Midwest.

EU, South America and Central Asia had record crops or are planting record crops. The European Union will be exporting corn. Brazil, the second largest exporter after the U.S., just increased acreage planted for its winter corn. Ukraine will harvest its biggest corn crop in history this year. Also, China had record corn harvests.

 Lee Gauss, a grain trader in Chicago, thinks corn will stay the same or trend lower because of the bumper crop in other key producing regions in the world.

“The report last week was neutral for beans but a little bearish for corn. The record price of eight dollars achieved last year boosted farmers income, and I will expect that farmers across the world will dedicate more acreage to corn to take advantage of the price,” Gauss said.

The weather pattern in the US does not tell the complete picture for forecasting the price of corn on the world wide commodities market. Corn producers in EU, Asia and South America compete with the US in the same export markets. Even though the US is the biggest exporter, prices are driven by total worldwide production.

Bumper corn production overseas could mitigate the impact a drought in the Midwest has on corn prices. Traders and farmers betting on a drought this spring should temper their enthusiasm for a rally in corn prices.

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