May 10, 2012

US Corn sellers 'squeezed' as prices surge

A surge in cash corn prices this week in Iowa caused a classic squeeze on short sellers, who had bet that the price of the crop in farmers' bins would fall.

Traders scrambled before the expiration of the May contract next Monday (May 7), pushing prices up as much as US$0.20 per bushel to US$6.86 on the CBOT.

"It's a short squeeze," said Mark Pfantz, marketing manager for Mid-Iowa Co-Op at Conrad. He said the delivery points along the Mississippi and Illinois rivers are short of corn. "The farmers aren't selling."

The cash market for corn has been robust this week on strong demand from processors and exporters, with most Iowa elevators offering prices ranging from US$6.20 per bushel in western Iowa to US$6.45 in eastern Iowa, where the proximity to river transportation traditionally has brought higher prices.

Big processors were offering even more. On Monday ADM in Cedar Rapids offered a cash bid of US$6.65 per bushel. Penford offered US$6.60 and Cargill US$6.50.

That left the short-sellers, who had bet on lower prices, hustling to buy corn before the Monday expiration date.

But while the price for the leftover 2011 corn sold for the May contract was at an eight-month high on Tuesday, the outlook for the corn farmers are putting in the ground now is less certain.

On Tuesday the December contract, which prices this year's crop, traded at US$5.27 per bushel, fully US$1.50 below the peak May price.

Commodity traders have warned that a confluence of forces, led by an expected big US crop planted on a record 96 million acres (14.6 million acres in Iowa), could reverse what have been tight domestic supplies since mid-2010.

The latest supply and demand figures from the USDA show US corn stocks still held in bins and elevators at less than 800 million bushels. But that figure is expected to expand to between 1.7 billion and two billion bushels by the time this fall's harvest is completed.