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Nearby corn plunges to 17-month low

05/24/2012 @ 4:35pm

Corn prices slid 4.1% to their lowest close in 17 months, pressured by unexpectedly weak export sales and favorable weather for the U.S. crop.

The decline erased the last of corn's gains seen during a brief, sharp rally last week, which was fueled by surging wheat futures and dry weather. This week, as weather forecasts have improved, traders have refocused on the potential for a record U.S. harvest this year.

The drop to a new low highlights the strong seasonal volatility in corn prices. Futures often whip up and down heading into the summer, as analysts watch shifting weather forecasts for clues about how crops will develop.

Corn for July delivery fell 25 cents Thursday to settle at $5.78 1/2 a bushel on the Chicago Board of Trade and is down 9% so far this week. The settlement price was the lowest for the front-month contract since December 2010, although prices dipped to similar levels in intraday trading five months ago. December corn futures, which reflect the outlook for the size of the fall harvest, fell 8 cents, or 1.5%, to $5.15 a bushel.

"This thing is trying to run off the train tracks," said Chad Henderson, president of Prime-Ag Consultants Inc., a commodity brokerage based in Brookfield, Wis. "I'm a little surprised."

Corn futures came under pressure Thursday morning after weekly export-sales data from the U.S. Department of Agriculture fell far short of analysts' expectations. Export sales in the week through May 17 were 482,000 metric tons, compared to estimates ranging from 900,000 to 2 million tons. The cause of the shortfall wasn't immediately clear.

Favorable weather overall for the U.S. crop also weighed on futures, as rains fell in the northern part of the corn belt and forecasts eased for dryness farther south in states such as Iowa and Illinois.

Sustained periods of good weather could boost the crop's yield, bolstering supplies when corn is harvested this autumn. The USDA this month forecast this year's U.S. corn production at a record 14.8 billion bushels, and said Monday that 77% of the corn crop was in good or excellent condition--higher than analysts expected.

The fall in corn futures steepened around midday, traders said, because large, speculative managed funds appeared to start selling futures to exit bets that prices would rise.

"That has been the pattern we've been in of late. We're really seeing the [speculative] money move together in a herd mentality," said Arlan Suderman, an analyst in Wichita, Kan., for agricultural trade publication Farm Futures.

Corn futures may rebound Friday as the sell-off could spark new buying interest, traders said. The decline also may raise concerns that futures need to rise again to limit demand, as current domestic supplies of corn are tight.

Wheat futures traded higher most of the day, boosted by strong export sales and concerns about dry weather in the southern Great Plains. But they weakened and ended mixed, pulled down by the accelerating slide in corn prices.

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