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Alex Breitinger column: Corn fears ease but prices remain high

8:01 PM, Dec. 28, 2012  |  Comments
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Corn prices made a record high this year as drought ravaged crops across the Midwest. Despite the fact that farmers planted the most acres of corn since 1937, this year's corn crop was relatively small due to drought-induced low yields. As corn baked throughout the late summer, market expectations of a dangerously small crop pushed prices to a record-breaking $8.43 per bushel.

Since late summer, good weather through harvest reduced fears of shortages, while still-high corn prices turned off many would-be buyers, decreasing demand. Furthermore, South American farmers will be harvesting their corn crop soon, increasing global supplies. As a result of a less-tight corn market, prices have dropped precipitously over the last four months, falling $1.50 per bushel, or 18 percent.

Despite the sharp sell-off, corn prices are still at historically high levels. Trading Friday at $6.90 per bushel, corn is more than triple the price from 10 years ago. Most analysts do not expect corn to return to the early 2000s' lows of less than $2 per bushel unless there is a drastic change in U.S. ethanol policy or global meat consumption, the two major sources of demand for corn worldwide.

Housing a bright spot

After suffering through five years of sliding prices following the housing bubble, homeowners are hoping the downturn is over. According to the widely followed Case-Shiller Home Price Index, prices nationwide are up more than 4 percent during the last year.

Other housing market indicators, such as existing home sales, housing starts and existing home inventories, all point toward a strengthening market. Economists focused on the prospects for U.S. economic growth are encouraged by the housing market, which contributed to the recent "green shoots" of the current economic recovery.

For commodities traders, stronger new-home construction could increase demand for lumber and copper, two markets that depend heavily on construction. As of midday Friday, copper for March delivery was $3.60 per pound and March lumber (comprised of random-length 2-by-4s) was trading for $391 per thousand board feet.

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