May 25, 2010

US corn futures rise as traders cover shorts amid China buys

US corn futures rose nearly 2% late last week as traders covered some short positions amid signs of new demand from China and uncertainty about weather as the crop develops in the US Midwest.

Traders said some of the short-covering stemmed from volatility in the dollar, crude oil and equities, which made many investors reluctant to hold large open positions in agricultural commodities over the weekend.

Corn benefited the most from short-covering as many investors had taken short positions in the past few days due to recent price weakness. Corn futures had fallen more than 17 cents below their May high before starting a rebound during Thursday's session.

Demand from China added further support. Private exporters reported the sale of 120,000 tonnes of US soy and 118,000 tonnes of corn to China on Friday morning. Concerns about the global economy also provided traders with a reason to exit their short positions, adding fuel to the rally.

Meanwhile, CBOT July corn futures settled up 7 cents at US$3.69 a bushel. It was the biggest gain in percentage terms for the front-month contract, which hit its highest level since May 13, since rallying 2.7% on April 28.

For the week, corn prices were up 3.4%, soy prices lost 0.7% and wheat prices rose 1.8%.

Despite Friday's rally, corn prices failed to break out of the range they have been trading in since a January USDA report forecast higher-than-expected ending stocks. The front-month futures contract has been stuck between US$3.44-1/2 and US$3.80 a bushel for the past 4-1/2 months.

Corn, soy and wheat prices were trading close to unchanged early in the session before the outside markets gapped higher, lending strength to agriculture futures.

Wall Street rallied as bank shares rose the day after the US Senate approved a sweeping Wall Street reform bill. Shares of basic material companies also spurred the rebound. But soy futures gave up their gains when crude oil prices turned lower. Some corn/soy spreading also weighed on soy prices during the session.

Wheat prices did not have the fundamental backing that corn and soy did but a weak dollar, which makes US commodities more attractive to overseas buyers, pulled wheat higher.