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Factors that Will Affect Corn Prices in 2013

Factors that Will Affect Corn Prices in 2013

Dennis Gartman, editor of The Gartman Letter, told CNBC's "Fast Money" last week that agricultural commodity prices will hinge largely on rainfall in 2013.

Blackstone Advisory Partners Vice Chairman Byron Wien also believes corn prices will be linked to climate; Wien predicted that climate change would contribute to widespread crop failures and send prices significantly higher to $8 a bushel.

However, factors other than the weather also play a role in commodity prices. Current high corn prices are leading farmers in South America and the Ukraine to plant more acres. This could affect prices worldwide, notes.

According to Informa Economics, U.S. farmers will plant 99 million acres of corn in 2013. This is the highest acreage since the 1930s and a 12 percent increase over 2010. North Dakota farmers alone will plant 1 million acres more than last year's estimates. However, a lack of adequate seed may lower these planting estimates.

China may play a larger role in corn demand this year. Richard Probasco, Vice President of Sales for D&E Equipment in Wilmington, Ohio, a supplier of grain handling and storage equipment, adds, “China is a huge consumer of US grains. If their needs change based on weather, politics, or changes in consumer spending, it could easily impact the price of corn.”

Probasco pointed to a January 10 report by the U.S. Grains Council that, for the first time in history, showed China will produce more corn than rough rice.

This change, first hinted in an earlier U.S. Department of Agriculture's World Agricultural Supply and Demand Estimate, is a result of the growing affluence of the Chinese middle class and a resulting desire for a protein-rich diet.

The Grains Council report says the USDA's upward revision of Chinese corn production projections by 300 million bushels illustrates how the economic trends of the world's most populous country could create opportunities for well-positioned corn producers, according to the National Corn Growers Association.

Sal Gilbertie, Teucrium Funds analyst, reacting to Friday's USDA Crop Production and Grain Stocks Reports, said that the report confirms global consumption of all grains last crop year will exceed production by nearly 31 million tons, solidifying the notion that demand for grains even in the higher priced environment of the past year is strong.

"Global corn use is projected higher primarily due to higher feed numbers in the U.S. Global corn stocks are also projected to decline, led by the U.S. corn carry-out at especially low levels.” Gilbertie said.

End users of corn will be hoping for a repeat of last year's early planting season to ease concerns of mid and late-summer supply shortages, he said.

March corn futures are up sharply this morning on the back of Friday's reports. The Teucrium Corn ETF (NYSE: CORN) is also up more than 0.6 percent in early trading.


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