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Agricultural Commodities'
Outlook Uncertain
By
ALAN R. ELLIOTT, INVESTOR'S
BUSINESS DAILY
Posted 06/28/2011 06:15 PM ET
Several
industries will have an eye on the U.S. Department of
Agriculture acreage report due out Thursday.
The
report, based on farmer surveys during the first half
of June, will provide some details on crop impact from
recent flooding throughout the Midwest. Harsh weather
led the agency to trim its forecast for acres planted
to corn by almost 2% earlier this month.
Despite
significant losses in areas such as North Dakota, estimates
generally call for a slight increase over the USDA's
conservative corn production estimates released earlier
this month.
"I
really don't think there is going to be much of a surprise,"
said Shawn Hackett, president of Hackett Financial Advisors.
The
more telling report will arrive in early August, when
the USDA estimates for crop production yields come out,
Hackett says.
The
agency is currently forecasting corn yields four to
five bushels per acre below trend because of late plantings.
Forecasts so far call for mostly favorable weather in
July. If the weather holds, Hackett expects yields to
improve to near or above crop production trends.
"That
would mean we'd be adding another 300 million bushels
of corn back in," he said.
Hackett
estimates that amount, added to demand destroyed by
price spikes this spring, would lift the year's ending
stocks to 1.2 billion bushels.
"That
is not a glut; it is not swimming in corn," Hackett
said, but it points to prices of $4.50 to $5 a bushel
in the fall — a bearish picture compared with prices
near $8 in May. Corn rebounded 4% Tuesday, settling
at $6.53 per bushel.
The
longer-term picture for corn is more complicated. While
the demand outlook remains bullish, the Senate's recent
vote to dismantle corn ethanol subsidies suggests corn
could lose its monopoly as a raw material for ethanol
at the end of this year.
That
would open 40% of the corn crop to lower-priced competition,
hinting at a considerable surplus, possibly as early
as next year.
"We
are probably reaching a peak, not in the production
of ethanol," Hackett said, "but in the demand
for corn used to make ethanol."
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