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Hackett Advisors in the News

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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