11 March 2009

Corn Rallies to 5-Week High, Soybeans Gain on Demand Prospects

By Jeff Wilson, Bloomberg, March 10, 2009

Corn rose to a five-week high and soybeans gained on speculation the worst of the banking crisis may be over, boosting demand for food, animal feed and fuel made from the crops.

Federal Reserve Chairman Ben S. Bernanke urged a sweeping overhaul of U.S. financial regulations to smooth out the boom- and-bust cycles in financial markets, sending U.S. stocks to their biggest advance in three months and gold to a one-month low. Before today, corn prices dropped 35 percent in the past year and soybeans fell 39 percent as the recession curbed demand.

“People were obviously happy with what Bernanke had to say and that is boosting the macro-economic indicators,” said Robert Lekberg, a market analyst for Penson GHCO in Chicago. “Investors are running away from gold as a safe haven and running back into the agricultural markets.”

Corn futures for May delivery rose 10 cents, or 2.7 percent, to $3.755 a bushel on the Chicago Board of Trade, after touching $3.84, the highest for a most-active contract since Jan. 30. Still, the most-active contract has dropped 53 percent from a record $7.9925 in June.

Soybean futures for May delivery rose 12 cents, or 1.4 percent, to $8.77 a bushel on the CBOT, after earlier rising 3.5 percent to $8.95, the highest since Feb. 23. The price still is down 46 percent from an all-time high of $16.3675 on July 3.

Crop Report

Soybeans and corn also rose as investors and speculators exited bets on lower prices before tomorrow’s monthly report from the U.S. Department of Agriculture on supply and demand, Lekberg said. The U.S. is the world’s largest grower and exporter of both crops.

Rising global demand for soybeans will result in smaller U.S. inventories than the government predicted a month ago, analysts said. The USDA probably will trim its forecast for soybean reserves on Aug. 31, the end of the marketing year, to 197 million bushels, down 6.2 percent from 210 million projected in February, according to the average estimate of 19 analysts in a Bloomberg survey. Last year’s surplus was 205 million.

Estimated corn inventories on Aug. 31 may total 1.809 billion bushels, up from 1.79 billion forecast by the government in February, the analysts said. That would be 11 percent larger than a year earlier.

Speculator Holdings

Hedge-fund managers and other large speculators increased net-long positions in CBOT corn futures to 15,375 contracts in the two weeks ended March 3 from 1,080 contracts on Feb. 17, when they were the smallest since December 2005, data from the Commodity Futures Trading Commission show.

Large investors cut net-long soybean positions by 49 percent to 7,611 contracts in the week ended March 3, the smallest since October 2006, CFTC said.

“People don’t want to go into the report with large short positions,” Lekberg said. “The speculative crowd has been increasing short bets on slowing global demand, and that story seems to have run its course.”

Corn and soybeans pared gains after crude oil fell more than 3 percent on speculation a government report tomorrow will show rising U.S. inventories, which may reduce demand for alternative fuels made from crops, said Victor Lespinasse, a market analyst for GrainAnalyst.com in Chicago.

“Prices ended higher across the floor, but well below their morning highs,” Lespinasse said. The drop in oil “trimmed the day’s gains significantly.”

Corn is the biggest U.S. crop, valued at $47.4 billion in 2008, with soybeans in second place at $27.4 billion, government figures show.

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net


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