Bloomberg News

Crop Traders Extend Bull Run as Rain Comes Too Late: Commodities

August 31, 2012

Crop Traders Extend Bull Run as Rain Comes Too Late

The worst U.S. drought since 1956 and dry weather in Eastern Europe and Russia drove corn to a record $8.49 a bushel this month. Photographer: Victor J. Blue/Bloomberg

Corn and soybean traders extended their longest bullish outlook in at least 11 months on speculation rain in the U.S. will come too late to revive crops after the worst drought in a half century.

Seventeen analysts surveyed by Bloomberg said corn will climb next week. A further six were bearish and four were neutral. Twenty expect gains in soybeans, four saw a drop and four predicted little change. The 19th straight bullish outlook is the longest run for corn since September and for soybeans since June 2011. Hedge funds’ bets on a rally in corn are the most in 16 months and near the largest for soybeans since at least 2006, U.S. Commodity Futures Trading Commission data show.

The worst U.S. drought since 1956 and dry weather in Eastern Europe and Russia drove corn to a record $8.49 a bushel this month. Food prices tracked by the United Nations rose the most since 2009 in July. Rain in the Midwest may be too late to improve yields because farmers already started the corn harvest and soybeans are reaching maturity. Credit Suisse Group AG said Aug. 29 the rally will to continue for several more months.

“The crop needed these rains a month ago,” said Christopher Gadd, an analyst at Macquarie Group Ltd. in London. “We expect to see prices of corn move closer to $9 a bushel. The situation for soybeans looks far more difficult because demand remains resilient at these levels.”

Crops Rally

Soybeans advanced 45 percent to $17.5275 on the Chicago Board of Trade this year and set a record yesterday. Corn gained 23 percent to $7.9725, reaching an all-time high Aug. 10. The Standard & Poor’s GSCI gauge of 24 commodities added 4.4 percent and the MSCI All-Country World Index (MXWD) of equities rose 7.5 percent. Treasuries returned 2.3 percent, a Bank of America Corp. index shows.

Areas of central Illinois and Indiana had as much as 3 inches of rain in the past two weeks, twice the normal amount, National Weather Service data show. Some Midwest regions received less than half of normal rainfall in the past 90 days. Tropical Storm Isaac may bring more than 4 inches of rain to areas of Illinois, Missouri and Indiana in the next five days, with smaller amounts stretching from southeast Iowa to Ohio, according to the service.

Corn production will drop 13 percent to 10.779 billion bushels this year, the lowest since 2006, and the soybean crop may be 12 percent lower at 2.692 billion bushels, the U.S. Department of Agriculture said Aug. 10. The agency updates its forecasts Sept. 12.

China Sales

The USDA announced daily export sales of soybeans to China exceeding 100,000 metric tons twice in the past two weeks. In the six weeks through Aug. 23, U.S. exporters sold 3.719 million tons for delivery in the current and upcoming marketing years, 12 percent more than in the same period a year earlier, USDA data show. Corn sales totaled 1.877 million tons, 49 percent less than a year earlier.

Costlier crops may curb demand from biofuel producers. U.S. ethanol output slid 11 percent since June 8 and in the week through July 20 reached the lowest level since the Energy Department began tracking weekly data in 2010. Producers are losing about 36 cents on each gallon of ethanol, based on fuel and corn contracts for September, data compiled by Bloomberg show. More U.S. corn went to ethanol refineries than into livestock feed in 2010-11 for the first time ever.

Cattle Slaughter

The jump in feed prices may spur livestock farmers to slaughter more animals. The domestic beef herd across ranches, feedlots and dairies dropped on July 1 to the smallest since at least 1973, USDA data show. Cattle spend 12 to 18 months eating grass before going to feedlots, where they consume mostly corn for five months until they are fat enough for slaughter.

The U.S. corn harvest is proceeding at the fastest pace ever because farmers planted early and the drought accelerated crop maturity, USDA data show. About 6 percent of corn was harvested as of Aug. 26, compared with none a year earlier. About 8 percent of soybean plants were dropping leaves, a sign of maturity, according to the USDA.

In other commodities, four of 10 traders and analysts surveyed by Bloomberg expect raw sugar to gain next week and the same amount were bearish. The commodity slipped 15 percent this year to 19.8 cents a pound on ICE Futures U.S. in New York.

Eleven people surveyed said copper will rise next week and eight predicted a drop, while eight were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, dropped 0.1 percent to $7,592 a ton this year.

Comex Bourse

Twelve of 31 traders and analysts surveyed said gold would rise next week, 11 were bearish and eight were neutral. Futures on the Comex exchange in New York added 7.4 percent since the start of January to $1,682.90 an ounce.

Holdings in exchange-traded products backed by the metal jumped to a record 2,460.5 tons by Aug. 29, overtaking France and Italy in the past two weeks to become the world’s third- largest hoard when compared with national reserves, data compiled by Bloomberg and the International Monetary Fund show.

Federal Reserve Chairman Ben S. Bernanke told central bankers and economists meeting in Jackson Hole, Wyoming today, that more bond purchases are an option as central bankers weigh further steps to boost the economy. Fed policy makers next meet Sept. 12-13.

The S&P GSCI gauge of raw materials entered a bull market on Aug. 21, climbing more than 20 percent from this year’s lowest close on June 21.

“This summer’s commodity rally is most likely over unless substantial policy stimulus is launched in the U.S., Europe or China,” said Filip Petersson, an analyst at SEB AB in Stockholm. “Now is the time to be long gold.”

Gold survey results: Bullish: 12 Bearish: 11 Hold: 8
Copper survey results: Bullish: 11 Bearish: 8 Hold: 8
Corn survey results: Bullish: 17 Bearish: 6 Hold: 4
Soybean survey results: Bullish: 20 Bearish: 4 Hold: 4
Raw sugar survey results: Bullish: 4 Bearish: 4 Hold: 2
White sugar survey results: Bullish: 4 Bearish: 3 Hold: 3
White sugar premium results: Widen: 4 Narrow: 1 Neutral: 5

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Whitney McFerron in London at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net


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