The surprisingly strong cash prices for corn, viewed as fuelling the revival in futures which continued on Friday, may be another sign that US officials are off-beam in estimates for feed consumption.

Cash prices of corn have puzzled investors by hitting their highest mid-winter levels compared with futures in at least a decade in US Gulf of Mexico ports - recording a premium, including freight, of 100 cents a bushel over Chicago values.

They have set seasonal records in some inland markets, including south central Illinois, where they hit a premium over futures of $0.05 a bushel on Thursday, compared with the discount of about $0.30 a bushel typical in late January.

"The corn cash market is on fire," Minneapolis-based Benson Quinn Commodities said, adding that the extent of the strength "has trade questioning US Department of Agriculture data".

"Is the pipeline tight due to lower production [than estimated]?" the broker added.

Data riddle

In fact, according to the University of Illinois, the explanation may be down to errors in another set of USDA data – on feeding by livestock farmers – over which analysts have long held doubts.

The USDA itself in October admitted it was baffled by corn inventories which, while low by historical standards, are surprisingly high given a rise in the animals on feed, as measured by the so-called "grain consuming animal units", to 93.7m.

Some investors have been less polite, terming the USDA estimates "a joke".

Other explanations which have been proposed for the apparent anomaly include low levels of grain in transit, strong imports from Canada, and a switch to distillers' grains, a byproduct of ethanol manufacture used as a livestock feed.

'Stocks smaller than forecast'

However, University of Illinois farm economists said that the extent of the strong basis (the gap between cash and futures prices), and its persistence since last autumn, "a relatively long period of time", suggested that the "rate of feed and residual use of corn may have been more rapid than implied by the recent quarterly stocks estimates".

If correct this would also "imply that recent stock levels have been over-estimated and that stocks at the end of the year will be smaller than currently forecast.

"That scenario would be a convenient explanation for both the strong basis and the apparent under-valuation of corn futures prices," a university report said.

It would also imply further strength in prices of corn, and thereby other grains, if supplies are indeed thinner than has been estimated.

The university said that, to judge by comparison with cash values, "futures prices may be under-valued by about $0.30 a bushel".

Export factor? 

However, other observers on Friday flagged the impact of a stronger-than-expected export demand, boosted by a drought-hit growing season in Argentina, in raising cash values.

Since December, when the basis has shown particular strength, "we have been arguing that the pace of exports has been stronger than expected", Societe Generale analyst Michael Haigh said.

US broker US Commodities said: "Argentina has 7m-9m tonnes of corn yet to sell. This is below the prior estimates and may be the reason for the stronger Gulf basis levels on corn."

The strong cash market was seen as sparing Chicago corn futures from losses, attributed to profit-taking, which depressed soybeans and wheat on Friday.

Corn futures for March stood 0.6% higher at $6.38 a bushel at 18:00 GMT, when wheat futures were 0.9% lower at $6.47 ¾ a bushel, and soybeans off 0.5% at $12.16 ¾ a bushel.