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The first US mad cow disease case in six years years has spooked the potash-reliant corn and grain market, while US soybean prices hit four-year highs on news of South American drought damage reports.
By James Wellstead — Exclusive to Potash Investing News
Reports of a case of mad cow disease in the US this week have moved grain and corn markets, which are key demand drivers for potash prices this year. Mixed weather forecasts for South America also continued to drive agricultural markets, while markets computed crop planting data released over the past week.
Global grain and corn markets are reacting to the news that US government officials have confirmed that a case of bovine spongiform encephalopathy (BSE), or “mad cow disease,” occurred at a California dairy farm.
While USDA chief veterinary officer John Clifford assured the public that “[t]here is really no cause for alarm here with regard to this animal,” grain-feed markets could be negatively affected if fears evolve into import bans of US beef as they did during previous scares in Japan and South Korea.
The Los Angeles Times has already reported that two top South Korean retailers have halted US beef imports in reaction to the findings.
Wheat and corn markets have reacted negatively to the BSE news, according to Elizaveta Malyshko, a grain analyst with UkrAgroConsult. Malyshko told Bloomberg that “we see a risk only from a price side, because wheat and corn on the Chicago exchange dropped after news about mad cow disease in California, despite other factors which were supposed to push the prices up.”
Soybeans and corn still strong
Troubles in key South American agricultural markets continue to push US soybean prices higher, edging the oil-bearing bean toward a four-year high.
Argentina’s 2012 soybean forecast figures were lowered from 44 million to 42.5 million by industry publication Oil World due to drought damage of crops.
Rabobank analyst Erin FitzPatrick told Reuters that “[t]he story of the impact of the unfavourable weather in Argentina is still not at an end and there are expectations of more cuts in harvest forecasts.”
Reflecting the fear of tightening supply, the Wall Street Journal reported that CBOT May soybean futures’ premium for the November contract have widened significantly to around 114 cents a bushel, compared with just 16 cents in end-February.
Growing fears about greater-than-expected damage of both Brazilian and Argentinian crops, and further speculation of continued frost damage in the latter, continue to drive prices higher as global supplies become scarce.
Corn, despite a price slide in recent days, continues to receive strong data, and led Goldman Sachs to claim that the sell-off on markets was premature.
Good planting conditions in the US Midwest, including a warm March and wet April, have led to record plantings of corn this year. The USDA announced that 28 percent of the crop has already been planted, a faster rate than any of the previous five years.
Potash prices have remained positive thus far, ranging between 0.8 and 1.2 percent higher since the beginning of the year, according to The Mays Report. Strong demand dynamics like those noted above have been important to this trend despite large-scale production cuts by leading industry producers Potash Corp. (TSX:POT) and Mosaic Co. (NYSE:MOS).
Junior mining news
Allana Potash Corp. (TSX:AAA) received a “buy” recommendation and twelve-month target price of $1.20 on Tuesday from equity research firm Salman Partners on the potash explorer’s “first mover advantage” in Ethiopia.
Salman Partners produced a report that estimates Allana’s current cash balance at approximately C$65 million, which in the firm’s view, is “sufficient to carry the company through the release of its bankable feasibility study expected in Q4 2012, while also providing flexibility to pursue various strategic alternatives that may arise.”
Allana is also drawing attention after adding Richard Kelertas, former Dundee Capital equity analyst of Sino-Forest fame, to its corporate development team. Allana’s CEO, Farhad Abasov, noted that “there are only a few people in the sector that know the Allana story and our project as well as Richard does.”
Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company or resource mentioned in this article.