Commodities Watch: Peru Halts Silver Mining Concessions; Corn, Wheat Continue to Flounder (BCEKF, RIOAF, ABX, NEM, SLV, SIL, CORN, DBA, MOO)

Today’s commodities watch looks at a government-ordered suspension of mining concessions in Peru and the continuing worries over grain prices as US corn planting remains behind schedule and Russia gets set to resume wheat exports.

Peru faces a run-off election for president on June 5th, and that has led the existing government to issue a 12-month suspension of silver mining concessions in the world’s second largest producer of silver. Peru produced about 116 million ounces of silver in 2010, second only to Mexico’s 129 million ounces. Until last year, Peru was the world’s largest producer of silver.

The suspension affects four provinces where miners are either on indefinite strike or protesters are objecting to new mining operations. Bear Creek Mining Corp. (OTC: BCEKF) and Rio Alto Mining Ltd. (OTC: RIOAF) are among the companies facing withdrawal of mining concessions. Bear Creek’s Santa Ana silver project, for example is estimated to have an 11 year production life and yield about 47.4 million ounces of silver. Rio Alto’s La Arena project is set to produce 2.8 million ounces of gold and 1.7 billion pounds of copper. Shares of both companies have fallen about -10% in the last few days.

Both Barrick Gold Corp. (NYSE: ABX) and Newmont Mining Corp. (NYSE: NEM) already operate gold mines in the province where Rio Alto is seeking a concession. Rio Alto officials believe that residents of the province support mining.

The protesters include native populations opposed to all mining because, they claim, it contaminates water needed for agriculture. Three protesters were killed in April during a confrontation with police at a copper project in one province.

The Peruvian presidential election could determine the outcome of the concession controversy. The conservative candidate supports the mining industry and is likely to push for the cancellation of the suspension order. The leftist-nationalist candidate says that he supports the country’s economy but would demand higher royalty payments from mining companies and use the money to reduce poverty. If that sounds familiar, refer to Hugo Chavez, president, Venezuela.

Demand for silver for industrial use is expected to continue rising, and demand for silver coins and bullion remains strong. A drop in Peruvian production could send prices higher, and for a good reason this time.

Silver is trading down about -1.5% in the early afternoon, at $37.67. The iShares Silver Trust (NYSE: SLV) is down about-2.25%, at $36.75, in a 52-week range of $16.94-$48.35. The Global X Silver Miners ETF (NYSE: SIL) is down about -1.5%, at $25.36, in a 52-week range of $13.68-$31.34.

Corn and wheat prices continue to be volatile as more conflicting news is published about the coming crop year. Corn prices are rising slightly today as the US Department of Agriculture reported that corn planting in the US is now up to 86% of the expected total of 92 million acres. In a typical year, about 95% of the corn crop is in the ground by now.

Only 63% of this year’s corn crop is rated to be in “good” or “excellent” condition. Last year at this time, 76% of the crop was so rated. One problem of course is that there’s still a lot of corn left to be planted.

As much as 2 million acres that were to be planted in corn could be planted in soybeans or other crops, leaving a shortfall of about 317 million bushels in the US corn stockpile. Needless to say, larger plantings of soybeans could weigh on the prices of those crops later in the year.

Unlike corn, wheat prices are falling as reaction to the news of the resumption of Russian wheat exports are still driving the market. Wheat prices are down about -3% today, having dipped as low as around $7.54/bushel before recovering somewhat.

In Russia, wheat prices may not have been rising as fast as some believed because the reported prices were the asking prices, not the selling prices. Russia is traditionally competes on price in nearly all commodities, including wheat and, at one time, oil. Russian wheat is usually the cheapest available and that is likely to shift demand from the US to Russia once exports resume on July 1st.

Adding to the pressure on US wheat prices is an expectation of rain in France and Germany later this week, giving the area’s wheat crop some relief from a severe drought.

The Teucrium Corn Fund (NYSE: CORN) is up about 0.5% today, to $45.48, in a 52-week range of $23.79-$48.77. The PowerShares DB Agriculture Fund (NYSE: DBA) is down more than -1%, to $32.34, in a 52-week range of $22.85-$35.58. The Market Vectors Agribusiness ETF (NYSE: MOO) is down more than -1.5%, at $54.56, in a 52-week range of $35.62-$57.93.

Paul Ausick