Corn rockets to a two-year high

Corn has caught fire, notching up its biggest daily gain since 1973 last Monday – 8.5% – on the way to a two-year high of almost $5.60 a bushel. US futures have gained 23% since the beginning of October. Speculative interest is at a record high, while the fundamentals have improved rapidly. The latest surge came as the US Department of Agriculture (USDA) announced that the American harvest would be 4% lower than its previous estimate a month ago.

That would slash stockpiles in the world’s biggest corn exporter to a 14-year low, even though the expected harvest would be the third-biggest on record. The prices of other staples, such as wheat and soybeans, also rose as traders pencilled in a battle for acreage with corn next year. Rice prices also climbed.

It may be too early to herald an overall food crisis, however. As Mark Berrisford-Smith of HSBC points out, “there is still plenty” of wheat available, with only 20% of the supply build-up in the last two years likely to be used this year. The US soybean harvest has hit record levels and the UN notes that rice stocks were at a seven-year high in July.

In the corn market, however, it now seems that “anything other than a record crop” spells trouble, says the UN’s Abdolreza Abassian. The ongoing increase in meat consumption in emerging Asia, along with a disappointing Chinese crop, have squeezed supplies. There has also been a jump in ethanol demand, which is expected to increase by 5% in 2010-2011. Corn is set to go higher, says Morgan Stanley’s Hussein Allidina. Prices will have to climb to at least $6 a bushel before they can stymie ethanol use.