Kernel of truth for corn

Rain and cold in the Midwest, coupled with falling prices, could put a damper on the planting record fueled by ethanol demand.

By Jeff Cox, CNNMoney.com contributing writer

NEW YORK (CNNMoney.com) -- The corn market figures to be as unpredictable as, well, the weather over the next month or so.

Price volatility in the past several days, coupled with unpredictable sways in rainfall and temperatures, could yet play havoc with corn trading.

ECONOMY

So despite a U.S. Department of Agriculture report Friday that showed corn planting will reach highs not seen since World War II, analysts say the next several weeks could see a subtle shift by some farmers away from corn and back into soybeans now that corn prices have fallen from historic levels.

The surging ethanol industry has pushed the swelling demand for the fuel's main ingredient, corn, making it the most-watched commodity on the market.

"This market is very sensitive to new information. We're going to see more volatility in a week's trading than in years past you'd see in a whole season," said Bob Thompson, who is both an agriculture analyst and a farmer in western Kansas. "Heightened sensitivity to news is the message."

The key USDA report showed farmers looking to plant 90.5 million acres of corn this year, ahead even of optimistic projections that the amount would increase to 88 million acres from the 78 million planted in 2006. The pronounced growth is attributed largely to demand from the ethanol industry.

Friday's news of nearly unprecedented supply immediately sent corn prices plummeting 20 cents to $3.83 a bushel before loss-limiting rules on the Chicago Board of Trade kicked in to halt trading. Monday brought huge losses as well, with the price falling all the way to $3.54 a bushel, a 21 percent drop from the high of $4.50 a bushel reached Feb. 26.

Prices settled Tuesday near unchanged.

Some analysts speculated that the price drop might change the thinking of some farmers who had planned to shift their soybean plantings to corn. The two commodities combine to make up 88 percent of all crops planted in the United States.

Philippe de Lapérouse, director of global food and agribusiness for renewable energy firm Soyatech, said his firm is cautioning its clients about the volatility of the corn market and how it could affect the biofuels industry.

"We wouldn't be surprised to see some back off from corn planting," de Lapérouse said. "There's a strong possibility that (the price drop) will persuade growers to not shift out of soybeans, depending on what the market is telling them."

Then there's always the weather, which also can influence prices and cause a shift in planting intentions.

Should the cold, wet conditions throughout the Corn Belt continue well into April, they could delay the start of planting season and reduce the total corn acreage. In that case, prices likely would rise amid continued robust demand, particularly from the biofuels industry, and lower than expected supplies.

Should the weather moderate, prices likely would hold steady or drop a little.

The short-term weather forecast for the Midwest isn't good.

Meteorologists predicted Tuesday to be the beginning of a fairly cold, wet snap for the region that should last the next week or so. Fields generally need several days to dry. Farmers then require seven to 10 days of practically round-the-clock work to get their crops in the ground.

While it's far from time to panic, the weather situation bears watching.

"From experience, it's just too early to know" what effect the weather will have on plantings, said Brad Rippey, a USDA meteorologist.

Not to worry, said Bruce Babcock, an economist at Iowa State University, who said more sophisticated farming equipment helps farmers get their crops in even with a narrow planting opportunity.

"There's always a window to get the crop planted," he said. "It may be a little suboptimal conditions, but with these high prices the crop is going to get planted."

A whole new world

Should the weather cooperate, this year's yield would hit 12 billion bushels, according to an analysis Babcock performed. That scenario, which he gave a 70 percent chance of happening, would moderate prices. But if the weather stays nasty and yields are lower, prices will rise, he said.

Bruce Battles, an agronomist with Golden Harvest Seeds, an agribusiness division of Syngenta (Charts), also said he believes the initial corn plantings projections are probably a bit high, with farmers likely to switch at least some acreage back to soybeans. Prices are likely to remain around current levels, he said.

Thompson, the Kansas farm owner, said that while corn's price may not maintain its all-time high, the industry has entered a new world.

"I think you would find pretty widely shared consensus that corn prices have moved into a new trading range," Thompson said. "It may not be $4.50 (a bushel), but I don't think anybody thinks we're going back to $2.50 anytime soon."

Rising corn prices affect a number of industries and food providers including Tyson Foods Inc. (Charts), Pilgrim's Pride Corp. (Charts) and Smithfield Foods Inc. (Charts)

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.