More Costly Corn?

Exerpts from news stories yesterday regarding the USDA crop forecasts for 2008/9:

Associated Press writer Henry Jackson:
Corn production this year could be down as much as 7 percent from the record-breaking heights of 2007, according to a U.S. Department of Agriculture report released Friday.

Here's another one:

"Today's report is an indicator that we're going to be living with very high corn prices for a very long time, at least through the next crop year," said Mark McMinimy, an agribusiness and biofuels analyst with the Stanford Group in Washington.

Although the report could prompt high prices, Roose said the USDA was being optimistic in its projections. If nothing changes, there could be even bigger problems than the report suggests, he said.

"In some ways it's actually kind of a bullish report," he said. "The bottom line is it says we're off to a poor start. We needed things to go almost perfect this year to avoid a big problem and so far we're staring at that big problem."

Apparently, futures markets are pricing in almost perfect growing conditions for corn this year, which is appearing increasingly unlikely. My sources are suggesting that the USDA estimates are typically overly optimistic, and that this year they are unrealistically optimistic. The risk is to the upside for prices.