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Corn more vulnerable than soy to a wheat reversal
By Agrimoney.com – Published 08/02/2010

Corn, which topped \$4 a bushel for the first time in six months, looks more vulnerable to a price reversal than soybeans, which hit an eight-month high, if wheat’s rally runs out of steam, analysts said.

Corn’s rise to a day high of \$4.04 ½ a bushel in Chicago – the best since January, and representing a rebound of nearly one-quarter in less than five weeks – owed something to fundamentals.

“If you had thought before which crop was most likely to rise, it would be corn,” said Mike Mawdsley, at Iowa-based broker Market 1, pointing to factors including Chinese buying of US corn and the relative paucity of corn stocks, as compared with use, a key input into commodity prices.

America’s corn inventories are set to end 2010-11 at 1.37bn bushels, according to US Department of Agriculture estimates, representing a thin 10.3% of demand. For wheat, the ratio is nearly 50%.

‘The prop’

However, in the main corn’s rise was a spillover from wheat, with the two having some crossover on many uses, such as livestock feed.

Furthermore, it looked like the grains were in the early stages of the battle for plantings for next year’s crop, with many farmers facing soon a decision on sowings, Don Roose, president of US Commodities, said.

“Wheat is the prop. If wheat goes, then corn goes,” he told Agrimoney.com.

And there was the potential for corn yield increases to lift US production, with Nebraska, Wisconsin and part of Iowa appearing on course for records.

Weaker demand

Indeed, look at US rainfall figures through the growing season, and “you could just die” they were so positive, said Darrell Holaday at Country Futures.

Meanwhile, use figures may be revised lower given the impact of high prices on curbing demand, he added.

“The USDA is probably going to have to cut ethanol use by 100m bushels. Then there are low hog numbers, low cattle numbers, so feed use is going to suffer too.”

It was “just wheat” that was helping corn prices. “If wheat breaks \$1 a bushel, corn will break \$0.40 a bushel [lower],” he said.

‘Real issues’

However, prospects for soybeans looked supported by the “incredibly strong” demand from China, which is on course for imports of 48m tonnes of the oilseed in the closing 2009-10 crop year, up 17% in a year, Mr Roose said.

“Of our crop disappoints at all, and if demand stays up, we could be vulnerable” to a supply shortfall which would support prices, he said.

Mr Mawdsley noted the wetter forecasts “across the major growing areas”, which could potentially set back soybean crops.

“We could start to see some real issues,” he said.

* Evening markets: hot day for crops ends on cooler note
* Russia’s woes lift wheat prices above landmarks
* Drought threatens ‘big hit’ to Russian sowings
* Rising sales lift Corn Products’ earnings hopes
* China has begun ‘new era’ of corn imports

© Agrimoney 2009