September 15, 2010

US corn prices surge amid yield fears

Corn prices jumped for the fourth consecutive session as the advancing US harvest disappointed farmers and stoked fears about a smaller-than-expected crop.

Prices climbed more than 2% Tuesday on worries that poor yields will tighten corn supplies at a time of strong demand. Corn for September delivery, which was the nearby contract, reached a fresh 23-month high before it expired at the CBOT.

Early yield results in Illinois, a major growing state, have disappointed many growers and are not expected to improve significantly as the harvest rolls on, analysts said. Harvest was 18% complete in Illinois as of Sunday (Sep 12), above the average of 6%, and 11% complete nationwide, above the average of 6%, according to the USDA.

Corn for September delivery reached US$4.81 1/2 a bushel before it expired up 8 3/4 cents, or 1.9%, at US$4.78 at the CBOT. Corn for December delivery, the most-active contract, closed up 11 1/2 cents, or 2.4%, at US$4.95 a bushel.

Strong fund interest continued to support gains, with commodity funds buying an estimated 18,000 corn contracts, a large amount. Speculative funds hold a massive long position in corn, signalling they expect prices to rise.

The USDA cut its corn output estimate to 13.16 billion bushels, with a yield of 162.5 bushels per acre, from its August estimate of 13.365 billion bushels, with an average yield of 164.7 bushels.

Analysts expect USDA will have to lower the yield further, and some are targeting a final yield well below 160 bushels.