Corn prices jump as US stocks dwindle

Corn futures soared the maximum permitted after the US said that its supplies of the grain were even tighter than had been thought, spurring talk of the need for even higher prices to ration demand.

The US Department of Agriculture, in a long-awaited report on domestic sowings, said that American farmers intended to raise seedings by 4m acres to 92.18m acres with corn, the second-highest figure since World War II.

Crop prices as of Thursday's close

Chicago corn: $6.93 a bushel, +4.5%

Chicago soybeans: $14.10 a bushel, +2.8%

Chicago wheat: $7.63  a bushel, +5.0%

Kansas wheat: $9.08 a bushel, +5.3%

London wheat: £202.00 a tonne, +1.5%

Paris wheat: E240.00 a tonne, +1.5%

New York cotton: 200.67 cents a pound, +3.4%

Prices for May contracts

The estimate was slightly higher than the market had expected, and came in part at the expense of soybeans, for which sowings were pegged at 76.6m acres, a decline of 800,000 acres.

However, ideas that additional acres easing the squeeze in US corn supplies were countered by separate statistics showing that American stocks of the grain were, at 6.52bn bushels, even lower than the market had thought, by nearly 170m bushels.

The weakness of the figure was equivalent to cutting more than 1m acres from US plantings, broker US Commodities said.

Soybean stocks, as of the beginning of the month, were also estimated below market forecasts, by some 50m bushels at 1.25bn bushels.

Market reaction

On futures markets, the data revived talk of the need for even higher prices to restrain demand

US grain stocks, March 1 and (change on market forecast)

Corn: 6.52bn bushels, (-167m bushels)

Soybeans: 1.25bn bushels, (-50.1m bushels)

Wheat: 1.42bn bushels, (+25.6m bushels)

"The market will now be back talking rationing on corn and soybeans," US Commodities said, adding that farmers "now need to make sure we get a sizeable yield" too to support supplies.

At Macquarie, Alex Bos said the data "suggest demand rationing will need to occur quickly in order to prevent US ending stocks from falling below minimum pipeline levels".

And University of Illinois economist Darrel Good said: "Just when it looked like the rationing job had been completed, this report suggests that corn is still being used too rapidly."

Chicago corn for May closed up the maximum $0.30 a bushel allowed by exchange rules, leading other grains and Chicago crops higher too.

In New York, new crop December cotton finished with the maximum permitted daily gain of 7.0 cents, boosted by a USDA estimate for domestic sowings of the fibre, at 12.57m acres, more than 600,000 acres below market expectations.

Clamour for corn

The weak corn stocks number follows a period of better US exports, which a further set of data showed had continued in the week to last Thursday, with shipments of 2010 crop hitting 1.9m tonnes, above trade expectations.

US sowings data, 2011, change on last year and (on market forecast)

Corn: 92.18m acres, +3.99m acres, (+240,000 acres)

Soybeans: 76.61m acres, -795,000 acres, (-261,000 acres)

Wheat: 58.02m acres, +4.42m acres, (+730,000 acres)

The grain is also in demand for ethanol plants, which produced 268m gallons of the biofuel in the week to March 18, making it the second best week ever.

Besides high oil prices, the economics of corn-based biofuel have been improved by higher sugar prices, which have curbed levels of cane going to make ethanol rather than sweeteners.

And demand for feed from livestock farmers has proven more resilient than many traders expected, supported by high meat prices, as economic revival repairs consumers' spending on protein.

"The stocks estimate implies a very high rate of feed and residual use of corn," Mr Good said.

However, the potential for using wheat as an alternative is one reason why the prices of this grain have been firm too, despite relatively large US inventories.

More wheat

Indeed, for wheat, both stocks and plantings reports were on the face of it negative for prices.

US plantings were pegged 58.02m acres, more than 700,000 acres more than investors had expected, reflecting higher forecasts for spring seedings.

Stocks were estimated at 1.42bn bushels, some 25m bushels above market forecasts.

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