September 9, 2011


CBOT corn trades higher than wheat amid tight supply



CBOT corn was traded at a premium to wheat as corn supply is expected to be limited further in the marketing year that began September 1 due to low production in the US.

According to Dow Jones, US is the world's largest exporter of corn with more than 50% share in global trade and its crop was badly affected by delayed plantings amid rains in April and excess heat at the time of development in summer.


International Grains Council has lowered US corn exports forecast for 2011-12 by 8.2% to 44.5 million tonnes and output by 4% to 325 million tonnes.


Around 0626 GMT, the most active CBOT December corn  and wheat futures contracts were trading at US$7.5075 per bushel and US$7.5050 per bushel, respectively.


Wheat normally trades at a premium of around US$1.50-1.75 per bushel on CBOT, but the gap has narrowed since December. In April, wheat traded at a discount to corn for the first time in 15 years.


"We are now heading into a period when CBOT corn will trade at levels higher than wheat on a sustained basis," said a Kuala Lumpur-based trading executive.


Another trader in Singapore said the corn-wheat spreads could rise to US$0.50 per bushel. Unlike corn, the supply of wheat, particularly from the Black Sea region, is ample.


Investors await the USDA's Agriculture monthly demand and supply report, due for release Monday (Sep 12).


Some private analysts have forecast US corn yields as low as 143-147 bushels per acre, significantly down from USDA's August estimate of 153 bushels per acre.


The trend of private forecasts makes it likely that the upcoming USDA report will also forecast a lower yield, ANZ Banking Group said in a research note.


If private estimates are confirmed, the US corn output estimate for this year may be revised downward by more than 10 million tonnes.


This is prompting investors to set up more long positions in corn futures contracts.


As of August 30, speculators added 10% on week to net longs in corn, bringing their overall positions to 253,000 contracts, accounting for 13% of open interest, according to the latest data of the Commodity Futures Trading Commission.

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