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Supply nerves boost corn futures

03/19/2013 @ 3:20pm

U.S. corn futures closed mostly higher Tuesday, buoyed by tight domestic supplies of the grain.

Chicago Board of Trade May corn gained 8 1/2 cents, or 1.1%, to $7.28 1/2 a bushel. The May contracts settled at a six-week high.

Nearby corn contracts are getting a boost from concerns about tight domestic stockpiles after last year's drought sharply cut output. Improved corn demand from ethanol producers is helping to fuel those concerns.

The strength in the front-month contract is related to increased demand from ethanol producers, said John Kleist, senior analyst with brokerage Ebottrading.com in Lakemoor, Ill.

U.S. cash corn basis levels--the gap between cash prices and futures prices--are historically high for this time of year, as the ability of buyers to source corn in the U.S. gets tougher as the year unfolds. The tight supply of corn is forcing processors, ethanol plants and livestock companies to increase basis bids in an effort to secure supplies.

The ethanol industry has struggled in the past year amid historically high corn prices and sluggish gasoline demand. But some positive signs for the sector have emerged recently. Valero Energy Corp. (VLO) said Monday it resumed operations this month at an idled ethanol plant in Ohio, and it plans to restart a plant in Indiana in about a week.

The pickup in ethanol demand is an underlying theme, but the steady, continuous purchase of corn futures by investors is tied to uncertainty about U.S. corn acreage this year, Mr. Kleist said.

The number of positions held in the CBOT corn futures market has jumped 68,000 contracts since March 8, as traders factor in the risk of smaller-than-expected acreage this year, Ebottrading.com's Mr. Kleist said. Investors are playing out the acreage theme, understanding any hiccup in production this year could lead to even tighter supplies next year, he added.

Wheat futures rose Tuesday, climbing in step with higher corn prices, while drawing independent strength from mixed signals on U.S. wheat crops in the Great Plains. Wheat prices often move in tandem with corn prices because both grains are used in animal feed.

May wheat futures ended up 9 1/4 cents, or 1.2%, at $7.22 a bushel at the Chicago Board of Trade. Kansas City Board of Trade May wheat rose 7 1/2 cents, or 1%, to $7.51 3/4 a bushel. MGEX May wheat finished up 10 cents, or 1.3%, at $7.98 1/2 a bushel.

Soybean futures declined, reversing early gains, weighed by the advancement of South American soybean harvests and the threat of slowing demand.

CBOT soybeans for May delivery finished down 2 3/4 cents, or 0.3%, at $14.06 3/4 a bushel.

Write to Andrew Johnson Jr. at andrew.johnsonjr@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
March 19, 2013 15:39 ET (19:39 GMT)
DJ UPDATE: Corn Futures Rise Amid Tight Supplies->copyright

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