Corn futures jump on tightened supply forecast

SAN FRANCISCO (MarketWatch) — Corn and other grains futures rallied Wednesday after a government report forecast worrying low levels of corn in stock.

Corn futures rose by as much as their exchange allows before posting more subdued gains, but still enough to take the grain to its best settlement since July 2008.

And, while much of the action centered around corn, other gains followed corn’s rally.

Corn for March delivery (CH11 698.50, +0.50, +0.07%) added 24 cents, or 3.6%, to $6.98 a bushel on the Chicago Board of Trade. It earlier rose 30 cents a bushel, hitting a limit previously set by the exchange.

The U.S. Department of Agriculture on Wednesday released its monthly World Agricultural Supply and Demand Estimates, slashing its forecast for domestic and international ending stocks of corn, further tightening the market.

By the time “corn pickers hit the fields in the U.S. this fall, per the latest USDA forecast, the U.S. will have 18 days of consumption in the bins,” said Ned Schmidt, editor of Agri-Food Value Review.

Prices have rallied in recent months so it is possible some of the tightening supplies could be priced in already, he added.

The Agriculture Department projected corn ending stocks, or an estimate of where inventories will be at the end of the marketing year, for 2010-2011 to be 70 million bushels lower to 675 million bushels. That brings the stocks-to-use ratio to 5%, tying with the ratio back in the 1995-1996 marketing year.

The Agriculture Department forecast corn will average $5.05 to $5.75 per bushel in 2010-2011, up from a previously estimated average of $4.90 to $5.70 per bushel.

Much of the decrease in domestic ending stocks of corn was due to a rising ethanol demand for corn, said Darin Newsom, an analyst with Telvent DTN in Omaha.

Other grains followed corn higher, with March wheat (WH11 884.25, -1.75, -0.20%)  rising 12 cents, or 1.3%, to $8.86 a bushel. It was wheat’s best settlement since August 2008.

Wheat has rallied on weather-related concerns about crops in top exporting countries. China has recently joined the list of problem areas as dry conditions have led to worries about the country’s wheat crop. Read more about China's drought and wheat crops.

The grain had earlier traded as high as $9.34 a bushel.

March soybeans (SH11 1,455, +3.50, +0.24%)  gained 17 cents, or 1.2%, to $14.51 a bushel. It was soybean’s highest finish since July 2008. The contract rose as high as $15.04 earlier.

The report noted few changes for wheat and soybeans.

Several food conglomerates were posting losses Wednesday. Shares of giant Kellogg Co. (K 53.03, -0.07, -0.14%) declined 0.4%. Shares of meatpacker Smithfield Foods Inc.(SFD 22.65, -0.25, -1.09%) declined 1.1%.

Kraft Foods Inc. shares (KFT 31.26, +0.02, +0.06%) , however, gained 0.4%.

(Source: http://www.marketwatch.com/story/corn-futures-rally-on-supply-forecast-2011-02-09?siteid=rss&rss=1)