Tuesday, October 12, 2010

Potash (NYSE:POT) Up on Lower Corn Yields

The corn crop in the U.S. is ending up lower than expected, and that has pushed up a number of companies, including fertilizer giants Potash (NYSE:POT), Mosaic (NYSE:MOS) and Agrium (NYSE:AGU).

That doesn't seem like it'll have any effect on the offer of BHP Billiton (NYSE:BHP) bid for the company.

Agricultural equipment makers like Deere (NYSE:DE) have also moved up some, although they have pulled back some after the initial push.

Overall the harvest is expected to end about 4 percent lower for corn, although estimates are almost 25 percent lower than earlier projections.

Friday, October 8, 2010

Corn Prices and Iowa Corn Outlook

Corn prices soared to the 30-cent per bushel limit to $5.28 on the opening of the Chicago Board of Trade Friday after the USDA lowered its estimate of Iowa’s per bushel corn yield from 179 bushels per acre last month to 169 bushels per acre.

Soybeans soared as well, rising 70 cents per bushel to $11.35. Both corn and soybean prices are at their highs for the year.

The corn yield estimate, if confirmed in the final post-harvest tally by the USDA in January, would represent a 7 percent drop from the 2009 harvest.

Last year Iowa farmers averaged 182 bushels per acre.

The USDA lowered its national per-bushel estimates from 162.5 bushels per acre to 156 bushels.

Commodity analyst Arlan Suderman of Farm Futures Magazine called the USDA report “shocking.”

Don Roose of US Commodities in West Des Moines called the report “a game changer.”

“This means that there will be tight supplies and a real battle for corn acres next spring,” said Roose, who added that the price for the March contract on corn could reach $6 per bushel.

Des Moines commodity broker Tomm Pfitzenmaier of Summit Commodities said “the USDA was expected to lower their yield estimates, but no one expected them to lower it this much all at once.”

Darin Newsome of DTN in Omaha called the USDA report “extremely bullish for corn, with a possible limit move. Domestic ending stocks to use are the second lowest on record. Soybeans and wheat also saw bullish numbers, leading to expectations of large gains in all three grain markets.”

Iowa is the nation’s largest producer of both corn and soybeans. Together the two crops contribute about $15 billion in cash to Iowa’s economy.

The report and surge in grain prices made itself felt on the stock market. Deere & Co., Iowa’s largest manufacturing employer, was up $4.24 per share to $76.14. Monsanto, owner of the DeKalb and Asgrow seed lines and whose stock has been under pressure this year, rose $2.37 in early trading. DuPont, owner of Johnston-based Pioneer Hi-Bred, was up 44 cents per share to $46.67.

While the higher prices for corn will help farmers make up financially for the lower yields, the increased grain costs will work against the margins for Iowa’s hog and cattle producers as well as the state’s 40 ethanol plants.

Livestock producers are enjoying their first profitable year since 2007, predicated on both better market prices but also moderate corn prices. Record corn prices in 2007 and 2008 triggered three years of losses for hog and cattle raisers.

The higher corn prices had a predictable effect on cattle prices. Feeder cattle, those six months of age or older who are sent to feedlots to be fattened, were down $2.57 per hundredweight to $106.55 in early trading in Chicago.

This year’s corn and soybeans crops were hobbled by record rainfall in July, which flooded many plants just as they were pollinating. Then an unexpected cold snap in late July interfered with some pollination.

Because crops were planted earlier this year during mild weather at the beginning of April, the Iowa corn harvest had begun earlier than usual.

The smaller crop raises the specter of short supplies. Dick Gallagher of Washington, chairman of the Iowa Corn Promotion Board, said “I think, even with the slight down tick, I am confident we have the corn we need.”

Concerns about the supply of corn due to the poorer harvest had driven up the price of corn from $3.45 per bushel in June to above $5 per bushel last month. Then a week ago the USDA reported 300 million more bushels of corn in storage from last year that hadn’t been reported previously.

The USDA said that the nationwide corn harvest would be 12.7 billion bushels, down 4 percent from 2009.