October 13, 2010

 

US corn prices surge to two-year high

 

US corn prices hit a two-year high on Monday (Oct 11), jumping more than 8%, as traders scrambled to buy after the USDA warned last week of dramatically lower supplies because of bad weather.

 

Corn prices have surged more than 15% over the past two days, making the jump one of the biggest in recent history and prompting some analysts to warn that the world was fast moving into another food crisis.

 

UN officials acknowledged over the weekend that the balance between supply and demand in the corn market was fragile, but insisted that the world would not see a repetition of the 2007-08 crisis.

 

In early trading in CBOT on Monday, CBOT December corn surged by an expanded daily limit of US$0.45, or 8.5%, to US$5.73 one-quarter per bushel, the highest since September 2008.

 

In normal circumstances, the daily limit in CBOT is US$0.30, but the exchange widened the barrier to US$0.45 after the market closed on Friday after corn prices rose US$0.30 during the final session of the week.

 

Analysts believe corn prices could hit US$6 a bushel, a level only seen during the peak of the 2007-08 food crisis, which saw the cost of agricultural commodities from corn to rice hit record highs, sparking food riots in poor countries.

 

The USDA shocked traders by forecasting in its monthly report on Friday (Oct 8) that the country's corn farmers would harvest about 12.7 billion bushels in the 2010-11 crop year that started in September. This is down 4% from the USDA's previous estimate.

 

The drop would slash the country's stocks to 900 milion bushels, the lowest level in 14 years. The USDA also cut wheat and soy production estimates.

 

The US is the world's largest corn grower and its exports make up the majority of global trade in the grain. The USDA had earlier forecast a record corn crop this year but a combination of unfavourable heat and heavy rains forced a re-evaluation of yields. The USDA cut yields to 155.9 bushels per acre, down from an earlier estimate of 162.5 bushels. The monthly reduction in yield was the largest on record.

 

The surge in corn dragged up wheat and soy prices. The weakness of the US dollar against other currencies, including the yen, also propelled the rally.

 

In Chicago, CBOT November soy surged to a year high of US$11.79 a bushel, up 3.9% on the day. CBOT December wheat rose 1.5% to US$7.30 a bushel.

 

The meat industry has warned of a game-changer in prices and profitability due to the surprise contraction in the US corn supply. Meat analysts forecast higher prices for beef, pork and poultry as producers pass on higher feeding cost.