Corn prices shoot through the roof
"Jan. 14 (Bloomberg) -- Corn rose to the highest ever in
World inventories of corn will fall to the lowest since 1984 on Sept. 30, the U.S. Department of Agriculture said Jan. 11. Inventories in the
Corn futures for March delivery rose 17 cents, or 3.4 percent, to $5.12 a bushel on the Chicago Board of Trade. The price earlier jumped the exchange's 20-cent limit to $5.15, topping the record for a most-active contract of $5.135 reached in May 1996. The highest price for any contract was $5.545 for July futures in 1996.
Corn rallied 17 percent last year after surging a record 81 percent in 2006, on increased demand to produce ethanol and feed livestock and poultry."
What is driving up international corn prices?
The USDA estimated world corn output in the 2007-2008 season, which began Oct. 1, at 766.7 million metric tons, down from 769.3 million forecast in December. That compares with an estimated 703.9 million tons harvested last season. Global consumption will rise to 772.7 million tons, up from the 766.4 million forecast last month and 721.7 million consumed last year, the department said. This will turn things dramatically, i.e. from a surplus of around 48 million tonnes to a deficit of 6 million tonnes.
Factors driving up international corn prices are:
- Passage of the New Energy Bill that requires that around 25% of total energy consumption in the
- higher demand from feed livestock & poultry
Impact on domestic corn prices?
As has been the case in most of the other commodities (agri or non-agri), a sharp increase in international prices have pushed up domestic prices too. Corn is no exception to this. Corn prices have moved up by over 50% in the past few months. They are currently quoting at around Rs.900 per quintal, compared to around Rs.500-600 per quintal a few months ago.
Higher domestic corn prices mean?
Higher corn prices have improved realizations dramatically for the farmers. As a result, more farmers are sowing corn today than at any point in the past. This has resulted in a substantial shift in the sowing pattern, from some of the other cash crops to corn. The area under cultivation this year amounted to a 74.6 lac hectares, compared to the normal area of 62.2 lac hectares. This is a substantial jump in the agriculture sector.
What does this mean for Monsanto
Higher area under cultivation will result in a significant jump in demand for hybrid corn seeds, of which Monsanto is a clear leader. The company’s ‘Dekalb’ brand of corn seeds is a market leader and overall Monsanto has close to 30% share (which is expanding with every passing year). This should result in a healthy topline and an even better bottomline expansion.
Rally in corn prices augurs well for companies like Monsanto, which supply the seed for sowing. Monsanto is the largest supplier of corn seeds in the
Disclosure: I have an open position in Monsanto in the portfolios that I manage.