November 16, 2010

CBOT corn prices increase as China order talk gains traction

CBOT corn prices increased on Monday (Nov 15), recovering the ground lost in the last session, as rumours gained traction that China had purchased up to eight million tonnes of the grain; most likely from Argentina rather than US.

CBOT December contract increased by US$0.33 a bushel, or 6%, at one point, an increase which would usually have meant going against exchange limits on regular movements if these had not been widened after the grain's limit-down close on Friday (Nov 12).

The drastic rise in buying came about after confirmation from Argentina, the world's second-ranked exporter of the grain, that it had entered talks over being placed on the list of shippers which are allowed to sell corn to China, the second-ranked consumer.

While there was rumour at first that these talks may last for two years, the idea that China, which returned to significant imports this year, may persist in buying was viewed as a bullish sign, even if Beijing potentially placed its orders with Argentina.

"What that would mean is that people currently buying from Argentina would have to come to us," an analyst said. "It keeps the demand structure together."

He added that the two-year delay did not seem possible given that China had, in dealing with the US, included most of the genetically-modified corn varieties which might postpone approval.

There was unproven widespread speculation that China was already in negotiations over buying three million to eight million tonnes of Argentina corn for delivery from March.

The talk comes against a background of record Chinese prices of the grain, which have caused many observers to believe that harvests this year and in the previous year were not as high as Beijing had attested to.

China last month lifted a ban on soy purchases from Argentina, which was introduced as part of a tit-for-tat trade dispute.

Futures gained further support from a USDA announcement that between Egypt and South Korea, both had bought 400,000 tonnes of US corn.