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Corn prices buck the trend; move higher on big crops

Most years when farmers are coming off three straight seasons of bin-busting crops, economists would say, prices more than likely are going into the tank. (Well, economists probably wouldn’t say it that way, but you know what I mean.)

Until USDA’s latest crop production report, U.S. corn farmers appeared to be on track to harvest their third straight 11-billion-bushel-plus crop, starting with the record 11.8-billion-bushel harvest in 2004. (The October report lowered the previous month’s 11.1-billion-bushel forecast to 10.9 billion due to dry conditions in the central Corn Belt.)

Even with 200 million fewer bushels in 2006, three years of 11-billion-bushel harvests would normally have sent corn futures tumbling. Instead, Chicago Board of Trade December futures were trading at a historically high level of $3.44 per bushel at press time.

Corn futures prices could continue to improve in late fall and winter, according to Kurt Guidry, agricultural economist with the LSU AgCenter. Guidry spoke on the outlook for wheat and feed grains at the Southern Region Agricultural Outlook Conference in Atlanta.

Why are corn prices moving higher when supplies are growing by leaps and bounds? Because the demand for corn could actually soak up most of those added bushels of corn, he says.

“I do believe that the domestic demand will be relatively strong and that export demand will be strong,” Guidry said. “I think we will see seasonal improvement in the remainder of 2006 and into 2007.

“I think we can see considerable upside potential in the next few months and thus the need for some upside protection to be able to capture some of that potential,” he said, referring to the need for hedging the 2007 crop.

Those higher prices are expected to attract more acres into corn in 2007, he said. A few days before he spoke in Atlanta, Informa Economics, the Memphis-based agricultural and commodity market research, analysis and consulting firm, said it expected 2007 corn plantings to be up 4 million acres.

But with the nearly 600-million-bushel increase in demand for corn for ethanol that USDA is projecting for the 2006-07 marketing year (June-May), “we could use most of that up in ethanol,” says Guidry.

You have to go back to the mid-1980s to find corn supplies approaching the levels they are now, he notes. In 1986 and 1987, beginning stocks and production combined to push the available supply to 12 billion bushels each year. Current supplies are expected to hit 13.14 billion bushels in 2006, down slightly from 2005’s 13.24 billion.

The difference between then and now is that demand in 1986 and 1987 only accounted for 7 billion to 8 billion bushels, pushing carryover stocks to a record 5 billion bushels in 1986. Corn demand is expected to reach nearly 12 billion bushels or 1.2 billion bushels below the expected supply of 13.14 billion bushels for 2006.

As a result of the phenomenal expected offtake, corn-ending stocks could drop to 1.2 billion bushels or 9 percent of total supply for the 2006-07 marketing year.

Ethanol demand is playing a big part in the dramatic increase in usage. USDA expects the amount of corn going into ethanol production to rise from 1.6 billion bushels in 2005-06 to 2.15 billion in 2006-07. The latter would be up 1 billion bushels from 2004-05.

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