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You consume a lot of corn syrup. You may not have a single bottle of it in your house, but it’s in at least 50% of the food packages in your refrigerator and pantry. How can that be? Food processors love to use it because it’s an excellent sweetener that costs half that of sugar. That’s why “flyover” country is draped in corn every year. Speaking of flyover country, it has been hot and dry in the Midwest and Plains States the past few weeks. The futures cost of corn has risen from $6.00 to $7.00 per bushel over that period. No mystery, huh?

I’m a contrarian on this issue. I don’t think $7.00/bu is a good value for corn, meaning I think the price of corn is overblown. Sure it’s hot and dry, but there are a few other facts in the corn market that seem to be getting scant attention in corn trading decisions recently. Consider these:

• The number of acres planted with corn this year in the U.S. is the largest since 1937 (USDA statistics). That’s one large geographic area.
• We had one wet and cool Spring. Farmers planted early, so the corn is tasseling early, meaning the plants are much more mature and withstand heat and drought better. “Knee high by the 4th of July?” Corn is averaging 5 feet high right now.
• U.S. corn is GMO (a genetically modified organism). It gets hot and dry every year, so corn seed has been engineered over decades to handle just the weather conditions we’re experiencing.
• Over the past two weeks I’ve driven through Indiana, Illinois, Iowa, Nebraska, Missouri and Kansas. Over 95% of the corn I’ve seen has been nicely tasseling, and today I saw husks filling out nicely with long ears of corn.

So what’s the deal? Well, there are two areas of the corn belt that were legitimately creamed by the recent heat – southern Illinois and southern Indiana. Estimates are that yields will be down 30% in those areas, and I believe it. But here’s the kicker – the 24 hour news cycle dedicated to agricultural news has dwelled on this geographical area, and it has become the narrative for the entire 2012 corn crop. Bad news sells, and don’t think for a minute that farmer sentiment and commodity trading decisions aren’t shaped by that news focus, regardless of what’s happening outside their own windows. So, given that rain is expected throughout wide swatches of the corn belt next week, I think $7.00 corn is too high.

Could I be wrong? Heavens, commodity traders are like major league sluggers – a .500 average is heroic. If we don’t get rain for another two weeks, I’ll be embracing $7.00 corn like anyone else. Yet … it hasn’t rained anywhere in the corn belt for the last two days, and corn futures dropped both days. Could it be that solid supply/demand fundamentals are starting to replace the psychological push of the last few weeks? Well, that would help me sleep better!

This entry was posted on July 11, 2012 at 4:41 pm and is filed under Food, Travel with tags 2012 corn crop, corn futures. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.