CBOT Corn Review: Futures End Up; China Demand Hopes Buoy Market

CHICAGO (Dow Jones)–Chicago Board of Trade corn futures ended higher last Friday, advancing for the third consecutive day on optimistic outlooks for additional Chinese demand.

China’s recent purchase of U.S. corn still has everyone’s ears perked up on the outlook for additional buying following Wednesday’s confirmed sales on talk of strong feed demand in the Asian nation, said Bill Rafferty, analyst with Penson GHCO in New York.

The U.S. Department of Agriculture confirmed Wednesday that China bought 115,000 metric tons of U.S. corn, its largest purchase since the 1998-99 marketing year. The new sale sparked chatter of China needing to buy an additional 500,000 tons and that helped support nearby prices, he said.

Traders added risk premium to the market because they expect China to buy corn as well as take some precautions on the uncertainties of a long growing season.

“China needed corn this year to meet feed needs to meet their mandate to increase hog and chicken populations for meat protein,” said P.F.G. Best analyst Tim Hannagan. “Their mandate to sharply increase ethanol production from corn and to fill their strategic corn reserve to 40% of domestic usage is increasing their needs as well,” Hannagan added.

Meanwhile, concerns about weekend rains slowing an active Midwest planting pace coupled with weakness in the U.S. dollar and gains in crude oil added psychological support.

A weaker U.S. dollar is often seen as supportive, because of perceptions that it makes U.S. grain and oilseeds less expensive to foreign buyers.

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Our Take:
Corn’s three-legged stool—domestic feed markets, ethanol and exports–will help farmers who faced a drastic drop in income in 2009. It is gratifying to see corn prices grow modestly despite the distinct possibility of a bumper corn crop this year.

 

But a strong corn market makes the acceptance of the E15 waiver application that much more important to ethanol producers who must pay those grain prices.

 

The U.S. ethanol industry has responded to America’s energy needs, and its growing desire to supply them domestically. But without the E15 waiver and the potential to grow the market by 50 percent, the cart will once again be in front of the horse.

 

Renewable Fuels Association  reports the latest production and demand stats: while ethanol demand hit another record in February—795,000 barrels per day (up 200,000 barrels from February 2009), supply remained well ahead, at 833,000 barrels per day. The industry now has a 22-plus day reserve. This fact will be a key element in moderating gasoline pump prices as we head into the Memorial Day weekend, when demand typically surges.

 

But we don’t want a healthy ethanol reserve to turn into a glut. The farmers and ethanol makers have stepped up and created a growing source of domestic energy. Now it’s the federal government’s turn to acknowledge that fact and create market space for this fuel: it will mean cleaner air and less carbon in the atmosphere, more dollars retained by the U.S. economy, more jobs for Americans, and fewer funds into the coffers of nations that are actively working to harm our citizens.

 

It is indeed possible that the would-be Times Square car bomber received at least some of his funds from money we pay for Middle Eastern oil. Should we continue to ramp up our spending on foreign oil and give them the chance to succeed next time?

 

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