Corn futures jumped the exchange maximum in Chicago for a second day amid further warnings that, with supplies now look considerably tighter than the 1995-96 low, prices needed to rise considerably to choke demand.
Corn for May delivery leaped the expanded limit of $0.45 a bushel, hitting a fresh two-year high for a spot contract of $7.38 ½ a bushel, before easing to closed at $7.36 a bushel, up 6.2% on the day.
The gains took to 11% the lot's increase in two sessions, and left it within $0.30 a bushel of beating the record price for spot corn contract hit in June 2008.
The rise came amid a continued stream of reports cautioning that corn prices needed to rise to choke demand, after official US data on Thursday showed that the country – the top producer and user of the grain – had 170m bushels less of it than analysts had thought.
Indeed, Goldman Sachs, forecast that corn prices would smash the record, raising its target for the grain to $8.60 per bushel in three month's time, from an earlier estimate of $6.20 a bushel.
"Corn prices need to rise strongly in the near term to ration demand, including feed," Goldman analysts said.
US Commodities said: "The bottom line is that the market now needs to ration 200m-300m bushels of corn use. The current prices have not done a thing to lower demand."
Where has it gone?
Analysts suggested that resilient use of corn by US livestock farmers was behind the greater-than-expected drop in inventories, with Rabobank estimating feed and residual use of the grain up 15% in the three months to March 1 to 1.56bn bushels.
"Margins for livestock and poultry producers increased in recent months due to the pullback in corn prices and record-high livestock prices," Rabobank said.
Many observers are now expecting the US Department of Agriculture to raise by 100m bushels, and "probably more", its estimate for domestic feed use of corn over the whole 2010-11 season, which ends in August, Steve Meyer and Len Steiner, analysts at exchange operator CME Group, noted.
Even though the USDA is expected by some analysts to trim its expectations for ethanol use, these assumptions implied corn use of 13.5bn bushels this season, and ending stocks of 575m bushels.
This would equate to a stocks-to-use ratio – a key metric for a crop's availability, and therefore of the prices it is likely to be able to command - of a meagre 4.2%. The current ratio of 5.0% is already the lowest in at least 50 years.
"Trade clearly is worried that in order for this math to work, corn prices will need to be significantly higher," Messrs Meyer and Steiner said.
'Very bullish indicator'
As an extra point favouring price rises, the duo highlighted that Thursday's stocks report showed the proportion of US corn stocks held on farm at 52% the lowest since at least the early 1970s.
"This again is a very bullish indicator. While higher prices will be needed to ration out demand, the fact that a larger portion of the remaining supply is off-farm clearly complicates the job."
Furthermore, a sagging dollar, which remains among its lowest levels since mid-2008, "will only support US corn exports".
Source: agrimoney
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