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Corn ends higher on USDA expectations

10/07/2010 @ 3:31pm

CHICAGO (Dow Jones)--Corn futures jumped Thursday on worries crop stockpiles will shrink as the U.S. posts a weaker-than-expected harvest and export demand strengthens.

The U.S. Department of Agriculture, in a monthly crop production report due at 8:30 a.m. EDT Friday, is expected to lower its average yield estimate for the corn crop. Producers across the Midwest have reported weak output because of excessive rains in June and hot, dry weather in August.

Corn for December delivery settled at a one-week high, up 9 3/4 cents, or 2%, at $4.98 1/4 a bushel at the Chicago Board of Trade. December is the most active contract.
Traders and analysts say the cut in expected output could erase an increased estimate for grain inventories issued by the USDA last week. Prices have recovered after sinking last week on the hefty inventories estimate, but remain below the two-year high of $5.28 3/4 a bushel hit last month.

Worries about poor harvest results could drive prices up to $5.50 in the coming weeks, said Mike Krueger, president of the Money Farm. Some analysts predict prices could eventually reach $6, but Krueger said that would be a stretch.

"I think the market is just gradually getting more bullish on corn, in spite of last week's stocks number," he said.

The average yield estimates of analysts is 159.9 bushels an acre, down from the USDA's September estimate of 162.5 bushels and its August estimate of 165 bushels, according to a Dow Jones Newswires survey. Analysts put production, on average, at 12.95 billion bushels, down from the USDA's September estimate of 13.16 billion, the survey showed.

The U.S. harvest is roughly 50% complete, and analysts aren't optimistic yields will improve as farmers bring in the second half of the crop. Localized flooding in the northern Corn Belt has "reduced the likelihood that better late-season harvests can offset weak early-season yields," according to a note from Morgan Stanley.

As for demand, a sale of 822,960 tons of U.S. corn to Mexico, announced by the USDA on Thursday, signals solid interest in U.S. crops, analysts said. The large sale overshadowed weekly U.S. corn export sales of 632,500 tons, which were toward the low end of traders' expectations.

In other markets, CBOT oat futures fell slightly, with the December contract settling 2 cents, or 0.5%, lower at $3.49 1/2.

Ethanol futures settled higher supported by strength in corn futures. Corn is the main feedstock for the U.S. ethanol industry. November ethanol ended $0.044, or 2.3%, higher at $1.988 a gallon.

-By Tom Polansek, Dow Jones Newswires; 312-341-5780; tom.polanek@dowjones.com
(END) Dow Jones Newswires
October 07, 2010 15:54 ET (19:54 GMT)
Copyright (c) 2010 Dow Jones Company, Inc.

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