(WSJ) – U.S. corn futures jumped 9.4% last week, lifted by concerns about tight current supplies and a rally in wheat prices.
The sharp rise came after corn futures had fallen 11% in the month through May 11, dragged down by forecasts for a large U.S. harvest this fall. Analysts still expect the influx of new supplies later this year to weigh on prices, but the continued strong spot-market demand for on-hand corn helped boost prices, highlighting concerns about the immediate availability of the grain.
Chicago Board of Trade corn futures for July delivery on Friday rose 10½ cents, or 1.7%, to $6.35½ a bushel. July futures were up from their close a week earlier of $5.81 a bushel.
In a sign that demand is still strong, spot prices for corn recovered ground last week after declining earlier this month. On Friday afternoon in the Louisiana Gulf region, an export hub, bids for corn to be delivered this month ranged up to 92 cents above the price of July futures, up two cents from a day earlier, according to the U.S. Department of Agriculture.
Strong cash markets mean farmers are demanding higher prices for corn that was harvested last year and put into storage. The buying interest in the spot market tends to drive futures prices higher.
“What it looks like to me is that both domestic users and exporters are fighting over tight available supplies,” said Dave Marshall, an independent grain-marketing adviser in Nashville, Ill.
Corn prices were also boosted by a surge in wheat futures, which rose 17% last week as concerns grew about dry weather in key global wheat-production regions, including the Great Plains and the former Soviet Union.
The direction of wheat prices is likely to continue affecting corn futures in coming weeks, analysts said. The two crops are linked because both grains can be used as feed for animals.
Fresh sales of U.S. corn to China also boosted futures. On Wednesday, the USDA said private exporters reported selling 240,000 metric tons of corn to China. The government agency also said that 660,000 tons of recently sold corn, previously listed as going to “unknown destinations,” is going to China. Market participants commonly interpret listings of sales to “unknown destinations” as a sign of Chinese buying.
Analysts expect China to become an increasingly important buyer of U.S. corn, and any announcements of new purchases would likely lift U.S. futures prices. The London-based International Grains Council last month said China’s corn imports may rise 50% to around six million metric tons in the year that begins on July 1.
Worse weather conditions for the U.S. corn crop now in the ground boosted futures as well, as traders became concerned about dry spots in the corn belt.
“This is kind of a double-edged sword for the crop,” said Shawn McCambridge, senior grains analyst with Jefferies Bache in Chicago. Dryness early in the growing season can help corn crops develop deeper root systems, which is beneficial for the plants.
However, sustained dryness “will start to stress the crop pretty quick,” Mr. McCambridge said.
Whether corn prices keep rising or give up their gains depends largely on the weather, analysts said. However, futures also could fall if last week’s rally lures farmers to sell more supplies this week, Mr. McCambridge said.
