Storms drive surge in US grain markets

published 13 June 2008

"This year, the corn crop needs to be a bumper crop or there will be a shortfall," says Kevin Kerr on MarketWatch.com. "It's likely that we will have a low yield crop, and $7.50 corn is a real possibility." By the beginning of this week, corn for July delivery had hit a record $6.70/bushel on the Chicago Board of Trade, up 8.6% in a week and 47% since the start of the year; contracts for later in the year have already breached $7.

"Torrential" rain in parts of the Midwest is behind the latest surge, says Chris Flood in the FT. The wet weather is delaying planting and threatening yields. "One trader estimated that about four million acres of corn and up to 19 million acres of soybeans have yet to be planted." Soybeans also rose on the storms, nearing $14.90/bushel, up 24% since the start of the year, although still down from an all-time record of $15.85 in March.

Wheat strengthened to almost $8.40/ bushel on "speculation adverse weather might damage the crop in Kansas", says Jae Hur on Bloomberg.com, although prices are far off the $13.50 briefly set in February. The market looks set to remain tight: on top of the weather damage, "US ethanol demand for corn is expected to use up one-third of this year's crop," says Flood. However, while this is bullish, "there is talk of the CFTC [the American futures market regulator] becoming involved in an attempt to cool these markets", says David Fuller of Fullermoney.com, and consequently there is a risk of sudden collapse. He suggests using a tight stop-loss to lock in profits if trading these markets.