Corn: Is the Ethanol Party Over?

While some commodities in the precious metals sector will enjoy a banner year in 2009, grains, and specifically corn, won't be doing to well, as least in the first half the year, as corn futures drop below $4 a bushel.

Contrast that to last year when the sky seemed the limit when corn futures reached over $8 a bushel, and money was plentiful.

Even the drought in Argentina hasn't made an impact on corn prices, as similar to wheat, the harvest globally has been so good, that losing a significant amount like that hasn't made a dent in the price holding up at all.

One major reason for the downfall was the reliance on the taxpayer subsidized ethanol industry, which unsurprisingly has been hammered from the artificial industry, which doesn't have a chance of being successful, as most government hair brained ideas aren't.

The drop in oil prices has caused the ethanol industry to collapse, and even with subsidies, many have already filed for bankruptcy. While that will help silver producers with cost inputs, it evidently won't help the costly corn production process.

Corn farmers need to learn if they suck at the government teat, they're eventually going to get sour milk.

Only the gullible couldn't see the foolishness of the government ethanol program that already has been seen to be a failure. Oil would have to be well over $200 a barrel to make it sustainable, and there would be a consumer outcry if that were to happen.

Corn farmers are now looking to get out of a lot of their corn acreage this year, and revert to soybeans, which have much less costly inputs, and a much better chance at success than the heavily subsidized corn ethynal debacle.

Unfortunately for corn producers, they've become addicted to government entitlements, and then mistakenly follow their business advice which they have no expertise in. That's why it's better to rely on yourself and your own research than dipping your hand in the public till.

Because of the mismanaged and faulty ethanol hoax, farmers will now find it difficult to optain loans for planting and inputs, as the banking system is wary, and the harvests and corn markets very volatile.

So even though we love maize, not even the drought in a major corn exporting country like Argentina who had their corn outlet cut by over 25% could bring corn futures back up again.

As far as corn prices later in 2009, one thing that could eventually help, is the fact that there probably will be quite a few less acres planted in corn this year, especially in the U.S.

Much will depend on if that remains true in other parts of the world, In Argentina, this is the worst drought since 1971, so it's hard to picture them going through something like this again. So they should rebound and have a good corn harvest next year, which will have to be included in the corn price outlook going ahead.

One thing for sure, this year will be as unpredictable as it has ever been for corn farmers, and looking ahead it could be much better to plant acreage in a more predictable crop than toss the dice on seeding fields in the volatile corn market.

Corn Results | Wheat, Soybeans Pressuring Prices

Corn results today are wheat and soybeans pressuring the prices down, along with a stronger U.S. dollar.

Chicago Board of Trade corn futures succumbed to outside pressure Tuesday, ending lower amid falling wheat and soybean markets, traders said.

March corn ended down 7 1/2 cents to $3.83 1/2 per bushel, May corn ended down 7 cents to $3.94 3/4 and July corn ended down 7 cents to $4.05 1/2.

The market had been higher for much of the day despite lower wheat and soybeans, but corn sank as those markets extended their losses.

"Wheat and beans are slam-dunking corn," said Vic Lespinasse, analyst for grainanalyst.com.

Weak crude oil and a stronger dollar weighed on corn and other commodities, analysts said.

The market climbed in early trading on technical strength and follow-through from Friday's sharp gains, said Shawn McCambridge, senior grains analyst for Prudential Bache. But McCambridge and other analysts said the market does not have a good reason to rally sharply.

"I think we're going to have to have some kind of a fundamental backing in order to continue to extend these gains," McCambridge said.

The demand outlook remains weak, with exports, ethanol and feed demand all suffering.

Traders noted a continued unwinding of the corn-soybean spread due to concerns that corn is losing acres to soybeans. Those concerns flared again with Informa Economics acreage projection released on Friday, a trader said. Some analysts said concerns about corn losing acreage are overblown, however.

Corn climbed above $4 in the March contract overnight and again early Tuesday, but retreated each time.

A trader called $4 "massive resistance," although McCambridge called it "a psychological benchmark we continue to watch."

South American weather remains a key focus of both corn and soybeans, and continued dry weather in Argentina is fueling concerns about crop damage. But support from the continuing dry weather there was mitigated by beneficial rains in Brazil, traders said.

CBOT oats futures ended lower. March oats were down 8 1/2 cents to $2.14 per bushel and May oats were down 8 1/2 cents to $2.23 1/4.

Ethanol futures were unchanged to slightly lower. February ethanol ended flat at $1.612 per gallon and March ethanol ended down $0.013 to $1.617.

-By Ian Berry, Dow Jones Newswires; 312-341-5778; ian.berry@dowjones.com
(END) Dow Jones Newswires
01-20-09 1527ET
Copyright (c) 2009 Dow Jones & Company, Inc.

Conclusion:

Results for corn will continue to push downward in conjunction with wheat and soybeans. Oil prices didn't help, also falling, neither did the U.S. dollar getting stronger today help.

Kenya Seeking $406 Million in Food Aid in the Midst of Corruption and Bad Policy

Kenya Prime Minister Raila Odinga

Kenya has asked the international community for $406 million in food aid, but they aren't receiving a friendly response.

At the outset that may seem cruel, but in reality much of this isn't related to the asserted drought, but by terrible planning and corruption within the country. No one wants to throw money or corn at a situation that will not do what it was meant to do.

For example, Prime Minister Raila Odinga deliberately blocked plans to expand the storage facilities for grain in the country, although he's in denial on it making things worse.

Terrible Kenyan policies like forcing farmers to sell grain only to the government, along with "targeted price controls," according to U.S. Ambassador Michael Ranneberger, have been significant factors in the alleged food crisis. Ranneberger added that it possibly could have been the impetus behind reports of corruption as well.

The problem is Kenya must get rid of its terrible policies, and from there develop more grain storage capacity in order to handle what may be sent to them.

Reports that some people have been selling large amounts of corn to nearby countries has also been acknowledged, although it's difficult to ascertain whether it's because of greed alone, or lack of storage is driving their actions. It's probably a little bit of both.

The bottom line is, how can countries send millions worth of aid in difficult economic times like these, when there's no guarantee it'll reach the people it was meant to help?

Dry Weather in Argentina Pushed Corn Prices Up Slightly

Dry weather in Argentina gave corn prices a boost today, after falling to their lowest level in a month yesterday. Argentina is only second behind the U.S. in exporting of corn.

Projections are the conditions in Argentina will continue, as expectations are that less than 1 inch of rain will fall in the major agricultural regions of Argentina over the next couple of weeks.

Corn responded by moving up as high as $3.695 a bushel on the Chicago Board of Trade in electronic trade, while closing at $3.66-1/2 a bushel.

Corn Plunges on Department of Agriculture's Projection of Larger Supplies

Corn fell to the lowest level allowd by the Chicago Board of Trade after the u.S Department of Agriculture said supply will be larger than originally projected in December.

Consequently corn futures dropped by the 30-cent limit to $3.8075 a bushel on the CBOT. That's closing in on the lowest price in two years experienced on December 5 of $3.055.

Corn inventories in the U.S. will come in at 1.79 billion bushels on August 31, a huge 21 percent more than the 1.474 billion bushels expected in December.

Estimates for the 2008 corn crop were also revised upward, adding another 0.7 percent to the total, while also cutting its projections for exports as well. As expected, production for animal feed and ethanol were also revised downward.

In 2007, corn in the U.S. was valued at $52.1 billion, the largest crop in the country.

Globally, corn levels will also increase from Decembers estimate, growing by 9.9 percent or 136 million tons.

Monsanto More than Doubles Profits in Fiscal-first Quarter

The fiscal-first quarter for Monsanto Co. (MON) couldn't have been much more profitable, as the biotechnology company more than doubled profits.

Most of that was driven by glyphosate-based weed killer "Roundup" sold in Latin America, along with overall corn seed sales.

Another factor in the solid profits was the pricing strategy implemented by Monsanto, as they increased corn seed prices by between 15% to 20% while looking to increase prices this year by up to 25%, said the company.

For Monsanto and other companies, the question becomes whether the price increases will be able to hold, as their original increases came before commodities got hit hard. If commodities don't come back fairly quickly, it'll be hard to maintain those increases in a soft market.

If that doesn't happen soon, management of costs will be a significant factor in Monsanto's profits going, as they may have to cut their projected price increases if farmers aren't able or willing to pay Monsanto's wanted price.

Another concern in the sector is the very real possibility of a worldwide seed pricing war, which according to Monsanto CEO Hugh Grant, they won't participate in, and will hold their projected pricing to maintain their margins.

The thought there is competitors will be forced to revert to increasing prices even if they gain some temporary market share, as it'll cut significantly into profits. That seems to be a risky strategy, but at the same time it's also risky for competitors over the long haul.

For the fiscal first quarter ending November 30, net income surged from $256 million last year to $556 million this year. Sales grew to $2.65 billion for a record first quarter, an increase of 29 percent.

The company also increased its guidance to a range of $4.40 to $4.50 from $4.20 to $4.40 on an ongoing basis.

Going forward, Monsanto is continuing on with its strategy of introducing its SmartStax corn seed, which include eight genetic changes, and developed to take the place of triple-stack corn seeds.

The drought-tolerant corn of Monsanto is also near the end of its research and development stage, and is awaiting approval from the U.S. Food and Drug Administration. Assuming approval from the USDA and targeted nations, seed is scheduled to be marketed in 2012.

Even with the great news of Monsanto's performance, the key going ahead is whether they can maintain their aggressive pricing without losing significant market share. Increased supply into the market and competitors' responding by lowering prices could put downward pressure on profits for the company.

Still, to perform like they have under these economic conditions is quite an accomplishment. Long term they seem to be a solid company to invest in.

DJ CBOT Corn Review: Ends Higher On Crude; Unchanged On Week

CHICAGO, Jan 02, 2009 (Dow Jones Commodities News via Comtex) --
By Ian Berry
Of DOW JONES NEWSWIRES

Higher crude oil and short-covering pushed Chicago Board of Trade corn futures higher Friday, as the market extended its rally from Wednesday, traders said.

March corn ended up 5 1/4 cents to $4.12 1/4 per bushel, May corn ended up 5 cents to $4.22 3/4 and July corn ended up 5 cents to $4.33.

The market was a penny or two higher for most of the day and gained a few more cents before the close. It remains firmly above key support at $4 as well as its 50-day moving average at $3.85.

"The market has given a clear indication -- not just corn, but wheat and soybeans -- that the Dec. 5 lows were fairly major," said Joel Karlin, analyst for Western Milling.

Higher crude oil and U.S. stocks set a supportive tone, although there was little fundamental news to boost the market, traders and analysts said. Weekly export sales of 269,900 metric tons were weak, traders added.

Traders and analysts add that the rally from a low of $2.90 in the nearby contract in December has been in light volume, much of it around the holidays. Many expect the market will give back some of its gains once traders return and activity gets back to normal next week.

Karlin said following the Jan. 12 crop report, the market will have "a renewed focus on fundamentals" including prospects for planted acreage this year.

Weak demand across all sectors continues to limit corn's gains, analysts say, and corn's recent gains will only hinder any rebound in demand.

Funds bought an estimated 1,000 contracts. Although the market closed higher for the third straight day, the March contract ended unchanged on the week.

CBOT oats ended slightly higher. March oats ended up 2 cents to $2.12 per bushel, May oats ended up 2 cents to $2.21 1/4 and July oats ended up 2 cents to $2.30 3/4.
Ethanol futures were mixed. January ethanol ended flat at $1.620 per gallon and March ethanol ended up $0.005 to $1.654.

-By Ian Berry, Dow Jones Newswires; 312-341-5778; ian.berry@dowjones.com
(END) Dow Jones Newswires
01-02-09 1543ET
Copyright (c) 2009 Dow Jones & Company, Inc.