Markets climb on strong demand
U.S. grain and soybean futures climbed Friday as traders shrugged off steady federal forecasts for season-end inventories to focus on concerns about strong demand draining low supplies.
The U.S. Department of Agriculture, in a monthly crop report, left its projections for corn and soybean inventories unchanged from March, surprising traders who had anticipated declines. Prices advanced as traders said the estimates indicated supplies were so low that forecasters were reluctant to make deeper cuts.
"You have to have a minimum amount of inventory," said Bill Gentry, analyst at Risk Management Commodities, a brokerage firm in Indiana. "You can't literally sweep all the corners out of the bins."
Corn for May delivery, the most-actively traded contract closed up 9 cents, or 1.2%, at $7.68 a bushel at the Chicago Board of Trade. Soybeans for May delivery finished up 28 3/4 cents, or 2.1%, at $13.92 1/4 a bushel, while soft red winter wheat for May delivery gained 24 1/4 cents, or 3.1%, to $7.97 1/2.
The unchanged estimate for season-end corn inventories was the most shocking in the report as it ran counter to USDA data issued last week that showed a larger-than-expected drop in grain supplies during the winter. That data sent corn futures to an all-time record above $7.70 a bushel this week. Prices have more than doubled since last summer on strong foreign demand, record U.S. ethanol output and steady buying by livestock producers who use corn to feed animals.
The USDA on Friday kept its forecast for corn supplies as of Aug. 31 at 675 million bushels, a 15-year low. Traders almost universally predicted forecasters would slash the supply outlook because last week's data indicated demand was stronger than expected.
"We believe this result is optimistic, and continue to see ending corn stocks below the USDA," analysts at Morgan Stanley wrote in a note to clients.
The USDA left its estimate for soybean supplies unchanged from March at 140 million tons. Futures prices need to stay high to encourage farmers to plant soybeans this spring to produce a large crop that can replenish supplies, analysts said.
"People are coming to the understanding that 140 million bushels of beans is not at all comfortable," said Jim Gerlach, president of A/C Trading in Indiana.
The USDA trimmed its forecast for season-end wheat supplies by 0.5% to 839 million bushels, surprising traders who were looking for an increase. The government indicated livestock producers may increasingly feed wheat to animals, instead of high-priced corn, as wheat inventories are ample.
Surging crude oil prices and weakness in the U.S. dollar contributed to the positive tone in the markets, traders said. Crude oil is linked to the grains because ethanol is made from corn.
Ethanol futures, as the USDA said producers would use more corn than previously expected to make the biofuel. The May contract settled 1.2% higher at $2.726 per gallon.