Corn Continues To Rise As Planting Acres Stay Restricted

Posted by Bull Bear Trader | 7/31/2008 07:39:00 PM | | 0 comments »

In another interesting move, Bloomberg is reporting that the U.S. Agricultural Department will not allow farmers to withdraw from a land-conservation program without penalty next year. The move has the effect of further limiting the acreage available for planting corn at the exact time that corn prices have come off record highs, demand is strong, and flooding has caused crop losses. While a win for environmentalists, the move will reduce the additional acres that many were expecting to be available next year. Not surprisingly, corn prices rallied on the news. Recently, corn prices had sold off, causing the margins for ethanol production to become attractive again. The current margins, along with the news of less than expected acreage increases are sure to have a bullish effect on corn prices. While there is most likely more to the story (there usually is), the fact that you would mandate something and then reduce your ability to produce or develop the raw material seems wrong on so many levels. Of course, this says nothing of how such moves will also continue to keep food prices artificially high as corn continues to be converted to fuel. If history is any indication, there is no doubt that as corn prices rise and more traders move back into this market, speculators will be blamed for the high prices hitting consumers, launching yet another formal inquiry.