October 13, 2011


US grain prices soar amid Russian plan to limit exports



US grain prices rose drastically as Russia said it intended to restrict exports.


The news from Russia fed traders' nervousness as they looked ahead to Wednesday's (Oct 12) US government crop report. Recent reports from the USDA have whipsawed agriculture commodity markets.


Corn futures for December delivery surged US$0.40, or 6.6%, to US$6.45 a bushel on CBOT, the largest one-day gain allowed under exchange rules. Wheat and soy futures, which largely have been taking direction from the corn market, jumped as well.


Russia's plans to limit exports fuelled expectations that foreign buyers will turn to the US for wheat and corn. Russia has been dominating the global wheat market by undercutting other sellers, including the US, with low prices.


Last year, Russia banned grain exports in response to a drought that cut output and sent global grain prices soaring.


"Essentially in the minds of traders, they are actually putting on an embargo again," said an analyst for PFG Best.


Analysts also attributed some of the rally to traders exiting short positions, or bets the market will fall, to book profits ahead of Wednesday's crop report. A short position is exited by buying a long position, which can cause prices to increase.


"More than anything else, I think it is people covering short positions", said another analyst.


Corn futures have dropped since the start of September on concerns over demand amid economic uncertainty. Further declines came after a September 30 government report showed larger-than-expected U.S. grain inventories, causing corn prices to fall to their lowest level of the year, US$5.725 a bushel for December delivery.


Analysts generally expect the USDA on Wednesday will make only modest changes to its forecasts for the size of the corn and soy harvests. Expectations are for the government to keep production nearly flat compared with a month ago, making a slight reduction in the number of harvested acres and a similarly small increase in the number of bushels produced per acre.

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