December 20, 2010

CBOT corn ends at near 28-month high on strong demand

CBOT corn futures settled at a nearly 28-month high on Friday (Dec 17) as strong demand for ethanol and a reduced forecast for plantings next year reignited fears about tight supplies.

Corn for March delivery, the most-active contract, ended up 9 cents, or 1.5%, to US$5.96 1/2 a bushel at CBOT, the highest close for a nearby contract since August 21, 2008. The contract ended up 22 1/4 cents, or 3.9%, on the week.

Strong demand for corn-based ethanol underpinned advances in the market, as Congress sent a tax bill to President Barack Obama that included an extension of a credit for refiners who blend the biofuel into gasoline, analysts said. Weekly ethanol production has already been large, encouraging expectations that the US government will have to raise its forecast for total use of corn.

An increased demand forecast would eat into corn supplies, which are already expected to reach a 15-year low at the end of the crop's marketing year on August 31. Supply worries have been supporting corn futures since June and pushed the market to a 27-month high at US$6.05 a bushel in early November.

Ethanol for March delivery rose 3.1 cents, or 1.4%, to US$2.229 a gallon at the CBOT. The contract closed up 8.8 cents, or 4.1%, on the week.

"This grind rate on ethanol is continuing to be a huge overhang on the market, so I think that's very bullish for corn," said an analyst.

Private analytical firm Informa Economics, a closely watched agricultural forecaster, helped fuel fears about shrinking supplies by cutting its estimate for how much corn will be planted in 2011 by 2.5% from November to 90.8 million acres, traders said. That would be up 2.9% from the 88.2 million acres sown in 2010.

Corn is fighting for acreage against other crops, including and cotton, which also are in tight supply. Futures markets are trying to encourage plantings of all the crops with high prices.