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Morning markets:corn prices extend rally despite data doubts

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Corn started off the week by setting a fresh two-year high, as traders attempted to deduce a fair value given such depleted US inventories of the grain, although it was not the biggest gainer among farm commodities.

How should investors factor in Thursday's data, showing US corn stocks 170m bushels lower than investors had thought? The figure for on-farm stocks was, at 3.38bn bushels, viewed as especially thin, and a particular issue as more off-farm inventories are seen as already accounted for by buyers.

One way was to question the number.

"The consensus that the USDA's recent estimates on stocks figures are not accurate is growing," Brian Henry at Benson Quinn Commodities said

"It seems many in the trade do not agree with the on-farm stocks," Brian he added, saying the figure presented a "scenario that is almost impossible to trade".

Another report ahead...

Still, in essence, you have to trade it anyway.

"If you believe in the number, 300m-400m bushels of corn demand has to be rationed."

Chicago prices did their bit to restrain buyers on Monday by adding 1.0% to $7.43 ¼ a bushel as of 08:30 UK time (07:30 GMT), having touched $7.45 a bushel earlier – a two-year high and just $0.20 from the record set in 2008.

At Commonwealth Bank of Australia, Luke Mathews said: "Prices need to remain high in order to ration demand, but based on current consumption statistics, the current high corn price is yet to ration demand sufficiently."

Phillip Futures followed Goldman Sachs in saying this should be easily achievable, saying the grain is on course for $8.50 a bushel ($0.10 short of the Goldman estimate).

Ker Chung Yang, at the Singapore-based broker, said: "High prices have not slowed down demand from grain users, and point towards a cut in government's season-end supply outlook," in the latest monthly US Department of Agriculture Wasde report on world crop supply and demand, due on Friday.

Corn vs soybeans

The new crop December lot showed a weaker rise, of 0.6% to $6.41 a bushel, amid some expectations that high prices may cause US farmers, the world's biggest growers of the grain, may raise sowings by even more than the 4m acres already expected.

This price movement left the contract neck-and-neck with


, which have lost some ground on the new crop front, despite expectations that a big chunk of these extra corn sowings will come at the oilseed's expense.

New crop November soybeans added 0.5% to $13.95 ½ a bushel.

Less becomes more?

Another dynamic affecting the oilseed is an expectation that, in Friday's report, the USDA may raise (yes, raise) its estimate for US soybean inventories at the end of 2010-11, despite in a quarterly stocks report last week citing them smaller than the market had expected.

The trouble is a far weaker pace of exports, as South American supplies come online, with the domestic crush a little soft too.

"In fact most private analysts have been revising usage tables since the report and have been increasing 2010-11 ending stocks estimates," Benson Quinn said.

While the USDA currently has an inventory figure of 140m bushels, "private analysts are now pegging carryout closer to 160m bushels".

Still dry

As for


, the grain actually outperformed corn in early deals, rising 1.3% in Chicago to $7.69 ½ a bushel for May, amid continued concerns for the poor condition of the hard red winter crop, an issue of which we will discover more later in the USDA's first comprehensive crop progress report of the year.

Parched hard red winter wheat regions received little in the way of moisture over the weekend, nor is any forecast over the next few days, Meteorlogix forecasters said.

The travails of hard red winter wheat have been one of two main factors supporting the grain – the other being potential spillover demand from livestock farmers putting it into feed rations instead of expensive corn.

(Concerns over dryness have eased a touch with spring rains on major producing areas, including the southern UK and France north of the Loire river.

"However, soil water content remains low and more rainfalls are needed," Paris-based consultancy Agritel said.)

'Caught by fears'

Still the real performer on Monday was


, which soared 4.0% to 444.30 yen a kilogramme for September, despite some concerns over the prospect of further moves in China to tighten monetary policy, after monthly manufacturing data showed a jump in industrial activity in March.

"The market is caught by fears of the Chinese government further tightening its monetary policies after the purchasing managers' Index, increased 1.2 percentage points from a month earlier to 53.4%," Mr Ker said.

Nonetheless, the rubber market is rife with supply concerns, "with the Thai Meteorological Department issuing its 21st flood warning since last Friday for the southern rubber-producing regions".

Thailand is the top producing country, with China the top importer.

Oil prices also rose, raising prospects for prices for synthetic alternatives to rubber


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