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Morning markets: corn extends rally, but reality bites peers

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New month, new quarter, and new data on agricultural commodities to trade, after the surprise reports on US crop sowings and, in particular, inventories.

But in fact, crop markets lost much of their polish on Friday, as external influences regained more of a grasp, and investors saw an opportunity for a quick profit after the last session's surge in prices.

'Rationing required'

Sure, old crop

corn

remained pretty immune, soaring nearly 6% to $7.34 a bushel in Chicago for May at one point - 1 cent from matching its two-year high - continuing to get a boost from those stocks numbers.

The US Department of Agriculture on Thursday showed domestic corn stocks as of March 1 some 170m bushels below market forecasts.

"Unless demand slacks off stocks are too tight, and the only way to ration demand is price," Mike Mawdsley at Market 1 said, and a point voiced by a range of brokers.

The May lot has now risen 10% in less than 24 hours.(It has fallen just short so far, by the way, of rising for a second day the maximum allowed by the Chicago exchange. Limit up is $7.38 ¼ a bushel today.)

But new crop corn felt the weight of sowings data showing that US farmers intend to plant 92.2m acres of the grain, 4m acres more than last year, and the second biggest area since World War II.

The December contract added 1.3% to $6.33 ½ a bushel as of 08:20 UK time (07:20 GMT), taking its discount to the July lot (up 5.1% at $7.37 a bushel) above $1.

Already rallied

And most other crops gave up the chase completely. For

soybeans

, gains running up to the USDA data continued to tell, even though the estimates showed a decline in sowings and lower-than-expected inventories too.

The May contract eased 0.75 cents to $14.09 ½ a bushel, while new crop November soybeans eased 0.2% to $13.92 a bushel.

"Keep in mind that soybeans were not in the liquidation mode going into the reports," Darrell Holaday at Country Futures said.

"Soybeans had rallied $0.40 in the last two weeks."

Soybeans' performance kept a lid on oilseeds complex peer

palm oil

too, which gained in Kuala Lumpur, but by a modest 0.9% to 3,355 ringgit a tonne for the benchmark June contract.

'Not the issue'

Wheat

, meanwhile, fell 0.5% to $7.59 ½ a bushel in Chicago for May.

The grain was, after all, less well-served (in bullish terms) by the USDA reports, which showed both stocks and farmers' planting intentions for the grain this spring higher than the market had expected.

And in New York,

cotton

dropped 1.7% to 196.92 cents a pound for May. New crop December cotton - which closed the last session limit up, after the USDA forecast US sowings rising less than the market had expected - fell 1.4% to 130.60 cents a pound.

"Whether the US new crop acreage is up 15% (after last night) or 20% (market consensus going into last night) is not of major significance given it does little to change the story of a large global surplus in cotton for 2011-12," Australia & New Zealand Bank said.

Oil rallies again

Still, there were reasons beyond USDA data to tread with caution.

One was higher

oil

prices. New York crude hit a two-year high of $107.65 a barrel, as Algeria's energy minister raised doubts over Opec's willingness to raise production further, and curb the impact on values of Middle East unrest.

Agricultural commodities have tended to be depressed by stronger oil, for fear of higher energy prices curbing economic growth, rather than gaining on the idea that many of them (including corn) are used in making biofuels.

And there is monthly data later on US employment which is keeping many riskier markets in check.

$8 corn?

As for whether farm commodities will be able eventually to shrug off such concerns, there are suggestions of further rises in prices.

"Demand rationing needs to take place for old crop soybeans, while we will need to see perfect summer weather for new crop before we see any significant pullback in prices," Kim Rugel at Benson Quinn Commodities said.

Wheat should "largely remain a follower", the broker added.

"But given the lack of old crop exportable supplies elsewhere in the world, it probably will keep up with corn to a certain extent."

Mr Mawdsley added: "If corn rallies too much, wheat will find its way into feed rations. Bottom line, if corn goes up, wheat will follow."

And for corn, given the right technical patterns – namely a close next week for Chicago's May contract above a high of $7.44 ¼ a bushel - "a run to $7.9-8.00 a bushel" could be on the cards.

By Agrimoney.com

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