Sex, drought, rich future lure investor to lowly corn

The Insider

Your Money

July 24, 2005|By BILL BARNHART

SUCCESSFUL investors resist impulse buying. But sitting in Chicago for the last few weeks created an urge for corn futures.

The buckle of the nation's Corn Belt - central and northern Illinois - is undergoing a drought not seen since the Big One in 1988.

Commodity investors, especially megabuck commodity futures funds and commodity-linked mutual funds, took the hint in early July: One of the most impressive spikes in corn prices in years was registered at the Chicago Board of Trade.

Alas, a price spike has two sides. After climbing to $2.60 a bushel Monday, from $2.31 on July 5, the price of corn futures has fallen to a close of $2.33 Friday, as spotty rains aided the critical corn pollination process.

This action was a bit like buying shares of Yahoo Inc. in hopeful anticipation of the company's quarterly report last week.

Oops. Neither trade was profitable. But the corn round trip was more useful.

When you invest, avoiding buyer's remorse often prompts you to learn a lot more about the investment than you knew before you bought it.

Searching for validation in the corn futures market entails a liberal education: globalization, gasoline prices, politics and, last but not least, sex.

Even if you live in the Midwest, you shouldn't trade corn futures by relying on the local news. The supply and demand for corn is global.

"Iowa looks fantastic, and Iowa is the No. 1 corn producer," said Ryan Brocklesby, a market analyst at commodity trading firm R.J. O'Brien. "We won't see the record yields [bushels per acre] we saw last year, but you won't see as dramatic an impact as an Illinois corn farmer might think."

U.S. production last year left a large amount of carry-over corn, helping depress prices in 2005.

On the other hand, global supplies are low, said Mike Zuzolo, an analyst at Risk Management Commodities in Lafayette, Ind.

"The trend in corn prices follows the global market, not domestic demand," he said.

Moreover, China's decision to employ a more flexible currency policy, ending a decade-long link to the U.S. dollar, could create fresh demand from China for all sorts of U.S. products, including corn.

Another boost for corn is the federal energy bill before Congress. As passed by the Senate, the bill creates mandates for ethanol as a clean-air additive to gasoline.

There's a good chance that ethanol made from corn will become a mainstream commodity.

"The likelihood of losing demand in ethanol is low as long as the government is on your side," Zuzolo said.

Commodity trading strategies may have to assume a closer correlation between corn and gasoline prices.

As for the sex, hot, dry conditions disrupt the transfer of pollen between corn silk and tassels.

"If the efficiency of the pollination process is reduced by these threats, the [corn] production likely will be reduced," said Shawn McCambridge, a senior grains analyst for Prudential Financial.

Bill Barnhart is a columnist for the Chicago Tribune, a Tribune Publishing newspaper.

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