Corn Surplus Sets Up A Contrarian Call On Food (CORN, POT, AGU, K, GIS, CPO)

Scott Martin: The commodity markets are interpreting last week’s corn harvest estimates as a negative for both food prices and the fertilizer group. Do not be misled.

The USDA currently expects to see U.S. corn stockpiles at 866 million bushels by the end of the year thanks to a 64 million-bushel decline in expected production.

Analysts were looking for slightly stronger production and much higher demand.

Even Credit Suisse is “puzzled” that the USDA remains stubbornly convinced that demand for corn is not rising from “arbitrarily” low levels — either domestically or around the world.

As they note, ethanol production continues and the lower corn prices dip, the more the food packagers buy.

Nonetheless, the numbers are the numbers, and traders who hoped for better have spent some time cutting their losses.

The corn ETF (NYSE:CORN) is down 1.2% and a wide range of food stocks are either down or trailing the market.

Logically, cheaper corn would be a boon to consumers like General Mills (NYSE:GIS), Kellogg (NYSE:K) and syrup maker Corn Products (NYSE:CPO), but these stocks are under pressure on fears that demand for their output is flat at best.

Declining production should definitely be a positive for the fertilizer group: PotashCorp (NYSE:POT), Agrium (NYSE:AGU), Israel Chemical (ISCHY) as farmers attempt to maximize their revenue per acre.

This is an opportunity to get into these stocks at cheaper prices. In the long term, global demand for food is only going to rise, and corn — which doubles as a sweetener and a fuel — is the focus.

If you believe people need to eat, buy this dip.

Written By Scott Martin From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

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