Corn prices 'to set record in 2011 - by a margin'

Corn prices are heading for a record in Chicago next year by a distance - boosted by the prospect of greater competition by Chinese buyers and US ethanol plants for supplies, Phillip Futures has said.

The Singapore-based broker followed many other brokers in making corn its top pick among food commodities in 2011. The likes of Barclays Capital, Goldman Sachs and Rabobank have also trumpeted prospects for the grain's price.

However, Phillip Futures was particularly upbeat over prospects, placing a target of $8.50 a bushel on Chicago corn futures.

A price at that level represents a premium of 38% over the closing price of Chicago's near-term March contract on Thursday.

It would also beat handsomely the record for a spot Chicago contract of $7.60 a bushel, set in June 2008.

'Heightened price risk'

Ker Chung Yan, the Phillip Futures analyst, attributed the broker's bullish outlook in part to the "greater role" that industrial demand for the grain would play next year, after America decided to extend tax credits for blenders of corn-based ethanol.

"The extra corn consumption spurred by extending America's ethanol tax perks could send US supplies of the grain to their tightest ever, creating a heightened price risk," he said.

"Strong Chinese demand further reinforces our optimism in corn prices," he added, forecasting that China will import 3.5m tonnes of the grain in 2010-11, more than the 1.0m tonnes that the US Department of Agriculture has estimated.

A jump of 3,000% in China's 2010 corn imports year on year reflected not just "nearer-term tight domestic conditions", but also a "broader move towards increased import dependence and the inability to remain self-sufficient".

Rationing required

The broker's stance compares with a forecast by Rabobank that corn prices, as measured by quarterly averages, would peak at $6.00 a bushel in the first quarter of 2011, while citing the grain, with soybeans and coffee, among its best bets for the year.

"We believe corn will drive the grains complex in 2011 as it has the largely potential price upside given its risk exposure to inventory tightness, policy intervention and energy prices," the bank said, also citing demand from China and biofuels plants as key market factors.

Demand for the grain will need to fall by 2%, or production increase by 17m tonnes, to prevent already-tight world stocks of the grain being squeezed further in the 2011-12 crop year.

"We believe corn prices must appreciate to encourage both a rationing of demand and an increase in global production in the year ahead."

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