Two recent developments have dramatically altered the fundamental situation for corn and soybeans. One is the renewed hike in crude oil prices. The other is the ongoing wet weather and flooding resulting in further delays in the completion of planting.

Oil prices rebounded to new highs on June 6. Continued high crude oil and gas prices will likely keep ethanol prices moving higher and increase demand for corn.

As a result of the flooding, it now appears likely that not all of the acres intended for corn and soybean production will get planted or re-planted. Significant acreage will be planted well beyond the optimum window for obtaining maximum yields. Corn and soybean crop size are being scaled back whether from smaller planted acreage, smaller harvested acreage, or reduced yields expectations. With trend yields, the USDA has already forecast a sharp reduction in U.S. corn inventories by the end of the 2008-09 marketing year and the continuation of very tight soybean inventories.

Potential crop size may continue to dominate the movement in corn and soybean prices over the next several weeks. Ultimately, however, the strength of demand for these crops will be most important as demand will determine the level of price needed to ration production. Consumption rates will be closely monitored for signs of a slowdown in use.

Uncertainty about crop production, demand strength, and potential policy changes suggest that significant price risk will persist into the heart of the corn and soybean growing season.

Meanwhile, more than 20 organizations consisting of food processors, retailers and food industry organizations, have launched a cooperative effort called Food Before Fuel. The initiative will urge Congress to revisit the nation's food-to-fuel policies. The campaign also has launched a Web site, www.foodbeforefuel.org that includes a variety of studies, fact sheets and expert quotes on the issue. The groups and companies involved include the American Meat Institute, National Cattlemen's Beef Association and the National Turkey Federation.

Source: Meatingplace.com