The Rising Influence of Rising Affluence

[DewDiligence]

Just when corn prices appeared to be headed lower…

http://online.wsj.com/article/SB10001424052970203686204577116924072558002.html

›Corn Pops on South American Heat

›DECEMBER 27, 2011
By IAN BERRY

U.S. corn futures have rallied recently on concern that hot, dry weather could persist in South America as the crop enters a critical phase of development.

Corn futures had slumped for much of the last three months as the U.S. crop came out of the field and export demand dried up amid increased competition.

But the focus is now shifting to South America to see if production there will fall short of expectations, leaving the U.S. to fill the gap.

Corn for March delivery at the Chicago Board of Trade climbed 6.3% last week, settling at $6.1950 a bushel. Soybean futures continued to gain on the same weather concerns, rising 2.9% on the week to close at $11.63 a bushel.

"The situation in South America bears watching," said Shawn McCambridge, senior grains analyst for Jefferies Bache. "It could become a larger issue if conditions continue to deteriorate."

The heat of the Southern Hemisphere's summer has been compounded by La Niña, a phenomenon in which tropical waters in the Pacific Ocean turn unusually cold, causing dry conditions in South America.

Intense heat and dry weather in Argentina, coupled with parched conditions in Brazil, have gotten the attention of traders who had for weeks been primarily taking cues from investor sentiment on the European debt crisis.

The corn crops in Argentina and Brazil are entering their pollination phase. Both countries are key global producers, so any reduction in output would reduce corn buyers' options and could shift export demand back to the U.S.

While the region received some rain last week, traders are worried that it won't be enough to offset the longer-term trend. Forecasts call for dry weather this week and a drier-than-normal January.

"The problem is there's been quite a break between shower systems, and the coverage area hasn't been as good as you'd like," said David Streit, a meteorologist with Commodity Weather Group in Bethesda, Md.

Analysts said last week's surge in corn prices wasn't driven solely by the weather. Mr. McCambridge said the market has pulled back too sharply, touching a one-year low earlier this month. Investors also have been exiting short positions, speculating sharp price declines are over for the near term.

Traders also note that export demand, which was lackluster in recent months, has lately shown some signs of picking up.

Still, they said that despite the hot weather, it is too soon to assume any yield loss to corn or other crops.

Trading markets driven by weather is "tough enough here in the U.S., when I'm seeing the rain," said Jim Riley, an analyst with the Linn Group, a Chicago brokerage. "They're that much tougher in South America."‹