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US rain nurtures jump in farm commodity prices

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Forecasts of wetter and wetter weather in the US Midwest sent farm commodity prices sharply higher, with a weaker dollar and stronger oil adding to buying pressure.

The wet weather which earlier in the month disrupted US corn and soybean harvests - which are the tardiest since records began in 1985 - has returned, and looks likely to stick around.

"Widespread rain for the week has started," Allendale, the Chicago broker, said.

"Eventually all areas will see rain sometime between this afternoon and Friday. Harvest will be restricted during this time. Next week's forecast shows rain and possibly snow."

Buy stops hit

With the dollar weakening to $1.50 against the euro, making US crops cheaper to foreign buyers, and a leap by oil above $81 on a smaller-than-expected rise in American crude inventories, the stage was set for a strong performance by crops.

Oil, besides being a flagship commodity, is particularly influential for prices of crops such as corn used as biofuels.

Indeed, prices were strong that automatic buy orders kicked in, adding to upward pressure.

"Some commission house buy stops have been hit on the way up today, adding to the floor wide gains," Vic Lespinasse at GrainAnalyst.com said.

"There has been a modest increase in farmer selling but not enough to reverse the rally."

Key levels

Chicago corn used the chance to stage a crack at the $4-a-bushel mark, which it has traded below since June.

It failed by half a cent, before consolidating at $3.97 a bushel by 17:00 GMT for the December lot, up 3.2% on the day.

Soybeans did better at retaking $10 a bushel, with the November contract up 2.4% at $10.05 ¾ a bushel.

A near-term Chicago contract hasn't closed above $10 a bushel since early September.

Funds cover shorts

As for wheat, Chicago's December contract jumped 3.2% to $5.34 a bushel, the best for a spot lot for more than two months, driven higher by spillover support from corn and by funds cutting losses on short positions – bets that prices would fall.

"Large traders seem to be buying out of short positions they have had on against long corn and beans," Allendale said.

"This is providing significant support even while cash markets remain at $1.00+ [a bushel] discount to futures."

'Happy to wait'

The rally was strong enough to make its way over to Europe too, despite a stronger euro, with sterling jumping 1.3% against the dollar after Bank of England meeting notes appeared to downplay the need for further economic stimulus.

Paris wheat for November closed up E1.75 at E129.50 a tonne, its best finish for nearly three months.

London feed wheat for November managed only to match Tuesday's close, of £102.00 a tonne.

Nonetheless, the grain has performed very respectably given the pound's resurgence, David Sheppard, managing director of Gleadell, the UK grain and feed group, said.

"Really, we should be £2-3 a tonne lower, given what has happened to sterling," he told Agrimoney.com, attributing the grain's resilience to a reluctance by farmers to sell at these levels.

"They have seen the improvement in the market. They are happy to wait."

By Agrimoney.com

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