Corn Prices: A cold spring means higher prices

Posted April 29, 2008

“America is the world’s king of corn. If our crop is going to be light, that puts corn prices on the launch pad.” — Justice Litle

by Justice Litle

Baltimore — (TFN): You can see (in this chart) that corn looks ready to challenge its recent high — and on rising volume, too.

Now for the fundamentals behind this chart. Soil in parts of the U.S. is too cool and wet for corn. This forces corn farmers to replant. Some investors think it will also force farmers to switch to soybeans (which can be planted later than corn), and maybe 10 or even five years ago, it would have. But nowadays, with farm suppliers practicing “just in time” inventories, farmers would have trouble finding the seeds for such a switch.

And too much rain means that farmers have planted only about 10% of the corn crop, compared with 20% at this time a year earlier. Over the past five years, the average for the date has been 35%.

Globally, corn supplies are already straining to meet demand. America is the world’s king of corn. If our crop is going to be light, that puts corn prices on the launch pad.

You can play corn with an exchange-traded fund: Corn is one-fourth of the holdings of the PowerShares DB Agriculture Fund (DBA:AMEX). The other parts are wheat, soybeans and sugar. But to really ride this agricultural rocket, futures or futures options are the way to go.

Be sure that any trade fits your risk profile, and run ideas past your investment advisor. View a chart of corn prices and find more from Justice Litle.

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