October 16, 2006

 

Speculators drive up corn prices as they home in on the next cash cow  

 

 

Corn prices, already the highest in two years, might rise further for a fifth straight week on increased demand for dwindling US supplies, arousing the interest of speculators from other markets.

 

In a survey conducted Oct 13 to study buying habits, 71 percent of the 24 traders, farm advisers and grain merchants recommended buying corn Corn prices, which jumped 16 percent last week, recorded the highest since 1988. Sixteen of the 24 respondents chose soy, which rose 4.9 percent last week.

 

The USDA also sounded a note of caution when it pointed out corn usage for animal feed and fuel exceeded production in six of the past seven years, reducing inventories to the lowest in two decades.

 

According to Dave Marshall, a market consultant, farmers the world over have not had the incentive to produce bigger crops.

 

Corn futures for delivery in December rose 43.5 cents to US$3.145 a bushel last week on the CBOT while November soy climbed 27.5 cents to close the week at US$5.915. The 4.9 percent gain for the week was the second straight and the highest since mid-June.

 

Corn harvest would be 10.905 billion bushels this year, down 1.9 percent from a September forecast. One reason for the lower harvest put forward was the extreme heat in July which reduced yields in Iowa, Illinois, Minnesota and Indiana, four of the top five producing states, said USDA.

 

Even though the crop would be the third-biggest ever, it would fall 8.9 percent short of anticipated demand from ethanol producers and livestock-feed customers in the US and overseas.

 

Projected US corn inventories on Aug 31, 2007, before next year's harvest, would  be less than 31 days of use, below the 64 days at the end of August this year. Global reserves before next year's harvest would fall to the lowest since 1984

 

Meanwhile, US reported a 44-percent hike in corn exports since Sep 1 to customers in Mexico, Taiwan, Japan and Israel, the most since June, indicating rising demand from makers of corn-based livestock feed.

 

There has been a strong rush to buy, said Brian Grete, an analyst.

 

Cash corn prices also rose 42 percent in Chicago and 37 percent in north-central Iowa in the past month, exceeding the 32 percent gain in futures on the CBOT, USDA data show.

 

With more hedge funds and other large speculators showing an interest in the corn market, the latter's price might go up. This could also mean a gain for soy as funds reduce net-short positions and go long, said Jim Gerlach, president of AC Trading Co. in Fowler, Indiana

 

Hedge-fund managers and other large speculators reduced their net-short position in Chicago soy futures by 54 percent, or 20,629 contracts, to 17,767 contracts during the week, the CFTC said.

 

More money is coming into the grain markets from commodity stalwarts like crude oil, copper, and gold, Gerlach remarked.