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Grains explode on new export demand

04/27/2012 @ 2:44pm

Near-term U.S. corn-futures prices jumped 4.6% Friday after the federal government reported the sixth-largest export sale ever for the grain, which analysts believe is headed for China.

The sale, the latest indication of a growing Chinese appetite for U.S. corn, coincided with analysts' expectations in recent weeks that China would make a large purchase from the U.S. to help replenish its reserves. China's state-owned grain-stockpiling enterprise, known as China Grain Reserves Corp., or Sinograin, in March said it would continue to import corn this year if it found a need or if doing so would be profitable.

As China's middle class grows, the country is using more corn as feed for livestock to produce meat, and in food products like sweeteners.

But the confirmation of a big sale renewed concerns that Chinese demand could stretch already-tight U.S. inventories of corn, and shot futures prices above their trading range of the last two weeks. Corn for May delivery closed 29 cents higher at $6.53 a bushel Friday at the Chicago Board of Trade.

"It's quite clear that the Chinese are going to need to be in this market, and continue to need to make purchases going forward," Jason McKibben, an analyst with commodities brokerage AgriSource Inc., in West Des Moines, Iowa.

The U.S. Department of Agriculture on Friday said private exporters reported selling 1.44 million metric tons of corn for delivery to "unknown destinations" during the 2012-13 marketing year, which begins Sept. 1. Analysts assume the buyer is China.

Only five other corn sales have been larger since the USDA instituted its reporting system in 1977, including two sales to the Soviet Union in 1989 and 1991, two sales to unknown buyers in 1979 and a sale to China in 1994.

The USDA on Friday also reported another 120,000 metric tons of corn sold for delivery to China--as a confirmed buyer--in the current marketing year.

The sales capped a string of corn export-sale announcements by the USDA this week. In total since Monday, the USDA has reported corn export sales of 2.84 million metric tons to China or unknown buyers.

July corn futures, the most actively traded contract, closed up 18 cents at $6.25 1/2 a bushel Friday. December corn rose by less than the May and July contracts, however, as traders expect a large U.S. crop this year to help replenish supplies. December futures closed up 3 3/4 cents at $5.38 3/4 a bushel.

China's purchases of U.S. corn have been irregular in past years, but many analysts expect them to become more consistent. In the first quarter this year, China's corn imports surged to nearly the volume imported in the whole of 2011. The U.S. accounted for almost all of the trade.

Corn pulled wheat futures higher. CBOT May wheat rose 16 1/4 cents to $6.42 1/4 a bushel. Kansas City Board of Trade May wheat rose 7 1/4 cents to $6.46 1/2 a bushel, and MGEX May wheat rose 6 1/4 cents to $7.74.

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