September 21, 2010

 

Europe's corn futures rise, feed grain prices hike

European corn futures jumped to six-week highs Monday (Sep 20) as concerns on declining world supplies fuelled last week's rally, sending feed prices higher across CBOT.

 

Liffe Paris November corn rose EUR4.75, or 2.3%, to hit EUR215.75 a tonne, its highest price since August 5, when futures reached a peak of EUR225/tonne - a level not seen since the end of 2007.

 

US corn prices broke Friday (Sep 17) above the key US$5-a-bushel barrier for the first time in two years. Futures for CBOT December corn in Chicago jumped 11% on the week to their highest close since September 2008, continuing a rally that has seen corn rally 40% since early July.

 

Analysts attributed the jump to fears of increasing tightness in the world markets after disappointing results for the US corn crop and weather concerns in China, Canada and South America sparked fears of dwindling supplies.

 

Rabobank said tightening fundamentals could present a "major risk for the world feed-grain market in 2010-11" and warned that markets remain vulnerable to "a number of significant risks which threaten to push grain prices higher over coming months."

 

Feed grains have seen a surge during the recent corn-led rally sue to fears livestock farmers will be forced to turn elsewhere for feed supplies. CBOT soy Monday (Sep 20) tested a year high of US$10.99 a bushel and European wheat prices hit previous two-and-a-half year highs of EUR238/tonne.

 

Global wheat prices have surged more than 60% in recent weeks due to fears of tightening supplies.
 

"Viewed in tandem with the past few WASDE's, global grains balances are now markedly tighter than envisaged just a few months ago," said Barclays Capital analyst Sudakshina Unnikrishnan.

 

Initial forecasts for the US had predicted a record crop, but yield expectations have been steadily downgraded in recent months because of poor growing weather. The USDA forecasted last week an average yield of 162.5 bushels an acre, having pegged output at 165 bushels as recently as August 12.

 

Buoyant demand from China has already stoked fears of tightening fundamentals in the world corn market. Despite official data from the Chinese government and USDA showing supplies are ample, Chinese customs data Monday (Sep 20) showed the Asian giant imported 432,191 tonnes of corn in August, more than double the volume that arrived in July.

 

"The drought in Russia and lower Black Sea wheat production has tightened the balance for global wheat supplies with corn a key beneficiary of the substitution while corn imports by the world's second largest producer-consumer China and the potential for further imports has provided a strong demand backdrop," said Unnikrishnan.