HardAssetsInvestor

Written by Drew Voros  |

August 08, 2011

Scoville: Corn Growing Into Major Commodity Player

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Veteran agriculture and soft commodity specialist says corn moving alongside crude oil as trading heavyweight

Jack Scoville, vice president for Price Futures Group in Chicago, is a futures market analyst specializing in grains, soft commodities and tropical products. His clients over the past 30 years include agricultural producers, processors, exporters and other professional traders. Scoville also writes subscription newsletters on grains, soft commodities and rice that have helped guide both institutional and retail investors alike. Scoville recently spoke with HAI Managing Editor Drew Voros about changes in the grain market, the consequences of higher commodity prices and the unlikelihood that Federal Reserve will initiate QE3.

Hard Assets Investor: What's the commodity story everyone misses?

Jack Scoville: The weather here in the Midwest. I’m not really sure exactly what has happened out there. There's been some damage to the corn crop, for sure. Exactly how much, we're not  sure yet, because nobody’s been able to get a real accurate count. It’s just too early. It’s one of the reasons why corn has gone from looking like it was almost ready to die to something that's pretty special  in the last few weeks. It dragged along with the rest of the grains.

HAI: Has the grain complex become a bigger player because of corn?

Scoville: The corn market by itself has been as big a trade as almost anything else out there, including crude oil. A lot of it has to do with the ethanol. It’s one third of demand right now. Five years ago, it was next to nothing. I can remember years when 8 or 9 billion bushels was a huge crop and we didn't know how we could get rid of all that. Now we're going to produce 13 billion bushels or more and we're not sure that's enough, which shows you how it has increased.  We are far and away the largest producer of corn.

Wheat’s been a big story with this drought down in the southern plains, which just never seems to end. A year ago, we had an absolute crop disaster in Russia, which pulled them out of the export market. They're huge competition for us and for the Europeans. Now they're back and that's forced wheat prices down, although they recovered here lately.  We've got poor production here against better production in some places around the globe. That’s creating a little bit of back and forth.

HAI: What's your opinion on the proposal to extend price limits on corn?

Scoville: A lot of corn users would rather they didn’t. I'm not sure I  see the need for it myself. CME (Chicago Mercantile Exchange) is looking at the fact we are at six or seven dollars (a bushel) and the markets are very jumpy, which is true. Yesterday, we did go up limit in corn. But really, I don't think that you can necessarily say that 30-cent limits have been a real hindrance to trade. The CME is trying to allow for more space to avoid the limit. I'm not against it, but I just don’t see the need for it.

HAI: Is there a major commodity that China is not interested in?

Scoville: Doesn’t seem like it, does it? The same is true not only in China, but in a lot of Asian countries. The Indians are kind of the same way. These are countries that have had significant increase in the middle class and when people make more money, they like to eat better. That usually means moving away from rice and beans and into things like meats and fats. All of a sudden you see them as tremendous consumers of corn and soybean meal.

You don’t see the Chinese too much in the wheat market. They seem to be growing enough of their own wheat right now. They don’t appear too terribly often in the rice market to buy. So there are some commodities where they have significantly less interest.

It's an open question as to how much corn they’ll buy here this year. They bought maybe a million-and-a-half tons already. But will they buy more? I don't know. They may not need to. Their weather may be good enough to avoid that.