Monday, February 1, 2010

Agricultural Update: US Corn Crop Faces Possible Mass Spoilage

Questionable Quality Of US Corn May Bring Masses To Market Soon

The prospect of warming weather in coming weeks could subject millions of bushels of stored U.S. corn to spoilage, resulting in waves of farmer selling and even lower prices, even though cash values are already at three-month lows.

Farmers won’t be able to wait out higher prices because damaged corn in storage could easily spoil as temperatures rise, making it all but worthless. Some suggest prices could tumble as much as a dollar per bushel from current levels, if farmer selling overstocks the supply pipeline. Much of the U.S. corn crop was stored with higher-than-usual moisture levels because a wet fall didn’t allow the crop to dry properly, making molds and the toxic
byproducts they produce a problem.

Farmers sold immediately what they could not store, but most of the crop
remains in bins or piled on the ground. January’s freezing weather halted the quality decline, but the snowy weather also has kept some farmers from getting to bins and marketing corn. A sharp break in prices since Jan. 12, when the U.S. Department of Agriculture said the U.S. corn crop was much bigger than expected, also has limited farmer selling. Benchmark Chicago Board of Trade March corn prices are down about 15% since Jan. 11 and Monday traded around $3.59 a bushel. The national-average cash-corn price was $3.18 entering Monday’s trading session.

“I am sure the sharp break will stop some of those bushels moving in the short run, but they will eventually have to come to market before planting season arrives or run the risk of being junk,” said an Iowa corn processor.
The Iowa processor said that, of the farmers that are selling now, about onequarter are bringing high-moisture corn that is prone to deterioration and difficult to store. If quality is poor, farmers will inevitably get less money for their corn. Dockage discounts imposed on corn of extremely low quality can total nearly $2 to $3 per bushel, providing heavy incentive for elevators and farmers to market it before such damage occurs. “I am hearing reports that up to 75% of on-farm stored grain is suffering from at
least some condition issue. This will only get the temperature warms,” said West Bend, Iowa, commodity trade adviser Karl Setzer. “The last time we had storage issues in corn was in 1992, which caused corn deliveries to increase 5% during the second quarter of the marketing
year. This would equate to roughly 500 million bushels of corn this year.”

During the second quarter of 1992, CBOT nearby futures prices fell 6%, but
Setzer said prices this time around could drop even more than that, depending on what farmers do. He added that some cash grain market advisers are telling their clients to wait to sell on general ideas corn prices could rally later this year, but “this is a very risky move, however, given this
year’s quality issues.”

Source CME News For Tomorrow

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