Corn Takes `Baton' From Wheat, to Lead Grain Rally, Rabobank's Gordon Says

Corn will lead the advance in grains and oilseeds, outperforming wheat, in the fourth quarter as La Nina threatens to parch crops in Argentina and Brazil, curbing supply and draining inventories, Rabobank Groep NV said.

“The baton is now being passed from wheat to corn,” said Wayne Gordon, an agricultural commodities analyst. The rebound in prices “has all been about climate,” he said in a phone interview from Sydney yesterday.

Wheat as much as doubled since early June and corn climbed to the highest level in two years after drought and flooding ruined crops from Russia to Canada. Global corn stockpiles will drop next year to the lowest level since 2007-2008 as livestock farmers seek alternatives to wheat, said the U.S. Department of Agriculture. Concern over food supplies in 2008 sent wheat, corn, rice and soybeans to records, sparking riots from Haiti to Egypt.

The climate risks that “dogged” wheat have not “broadly filtered through” to corn, said Gordon, who correctly predicted on Aug. 30 that the price gap would narrow after wheat costs climbed to almost double those of corn. There is also the risk of low stockpiles relative to consumption, he said.

Corn for December delivery gained 0.5 percent to $5.08 a bushel at 12:19 p.m. Singapore time, taking the advance for the most-active contract to 16 percent this month, three times the increase for wheat. A bushel of wheat will buy 1.42 bushels of corn today, down from 1.95 bushels on Aug. 5, the day Russia announced its ban on grain exports.

‘Tight’ Supply

“The supply and demand scenario seems quite tight,” said Jonathan Barratt, managing director at Commodity Broking Services Pty, in an interview from Sydney. Corn may climb to $5.50 by December, he said, the highest level in more than two years. “People aren’t factoring in adverse weather just yet.”

Increasing demand for feed grain in China, the world’s second-largest consumer, and rising ethanol production in the U.S., the biggest corn grower and exporter, will shrink supplies, amid harvest “uncertainties” in South America, Gordon said.

La Nina, characterized by colder-than-normal surface temperatures in the Pacific, can cause below-average rainfall in parts of the U.S., Argentina and southern Brazil and wetter weather in Asia, according to Telvent DTN Inc. The event may strengthen through November to January, before beginning to weaken, according to the U.S. Climate Prediction Center.

The last La Nina was in 2008-2009, Gordon said. Exports from Argentina, the second-largest corn shipper, plunged 46 percent that year from the previous season, and Brazil’s shipments slumped 8.9 percent, according to USDA data. The two nations are likely to represent 24 percent of global exports in 2010-2011, while the U.S. will supply 57 percent.

‘Driving Seat’

“Yields are the underlying support,” Michael Pitts, a commodity sales director at National Australia Bank Ltd., said by phone from Sydney yesterday. “A lot of that will depend on what happens” in South America, he said.

Advancing corn prices may push soybeans, another ingredient in livestock feed, as high as $12.50 a bushel by December, the highest in more than two years, Commodity Broking’s Barratt said yesterday. Wheat futures may decline to $7 around the yearend, Barratt said. They traded at $7.21 a bushel today.

“It’s now firmly corn in the driving seat and the other commodities will start to follow,” Rabobank’s Gordon said.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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