Corn Fungus Causes Worry, But Scope Seen Limited

Concern about fungal disease in corn has rippled through both the corn and soymeal futures markets late this week, but on the ground those ripples might not extend beyond parts of the northeast corn belt.

The quality of the corn crop has been a concern for weeks, thanks in part to a soggy growing season that can breed molds and disease. But the Chicago Board of Trade market didn’t react strongly until Thursday, when traders said it was the cause of a surge in soymeal amid weak corn prices. That trend continued Friday.

The concerns are about vomitoxin, a disease caused by the Fusarium fungus. The disease can attack corn in wet conditions and become concentrated in distillers dried grain, an animal feed byproduct of ethanol production.

Vomitoxin levels in corn are too high in parts of Indiana and western Ohio, said Dan Basse, president of Ag Resource Co.

Part of the concern is that animal feeders, especially hog producers, will not use the DDG in their rations. DDGs are commonly used by some swine producers as a cheaper source of protein and energy in the ration. They are used as a substitute for part of the corn and soymeal.

The speculation is that hog producers shunning the DDGs will turn to soymeal.

“It’s purely speculation at this point in the market, but if it turns out to be a real issue it could have some implications on protein demand,” said Anne Frick, senior oilseed analyst with Prudential Bache.

For now, the cash markets are indicating it’s not that big a deal. Don Roose, president of U.S. Commodities in West Des Moines, Iowa, noted there has been no significant shift in soymeal basis or demand, which would have been expected had a shift away from DDGs been under way.

Often the futures market will “dial risk premium into a market, just in case it’s a bigger deal than you think,” Roose said.

With farmers aggressively harvesting corn right now, the market should soon find out whether the presence of vomitoxin is a significant problem, Roose said. If it’s not, the market should remove the soymeal risk premium “sooner rather than later.”

Rich Feltes, MF Global senior vice president for research, said in a Friday commentary that even if there is a shift to soymeal away from corn, “crushers have plenty of beans around, so it seems this should be only a short-term rally.”

Purdue University agronomists say that feed laced with vomitoxin is a much bigger concern for hogs than cattle or poultry.

Brian Richert, Purdue Extension swine specialist, recently said some producers have started feeding new crop corn and had nearly 100% feed refusal because of vomitoxin levels.

Cattle and poultry can handle higher levels, analysts said. And although vomitoxin is a problem in DDGs, it does not pose a problem for ethanol production, they said.

If vomitoxin does prove to be a widespread problem, the implications for corn would extend beyond feed demand, a floor trader said. Potential export business could dry up as other countries decide not to take a chance, he said.

Complicating the matter is that the test to detect vomitoxin is costly and can take five to seven days, Basse said. This raises concerns that some of the infected grain could “slip through the cracks,” he said, and is making the industry cautious.

But Basse and others said ultimately it will be a regional problem.

NewEdge analyst Dan Cekander said the northeast corn belt is the only area facing problems.

“Corn growers will adjust and ship their corn elsewhere, and what limits the magnitude of this is not all corn varieties are susceptible to the vomitoxin,” Cekander said.

Roose and a floor trader also noted Friday that as the harvest picks up, some of the later corn has dried down and actually appears to have improved quality.

Source: CME Group