U.S. corn futures are expected to start stronger Monday as the government reported another sale to an unknown buyer, thought to be China.
Traders and analysts predict corn for May delivery, the most-actively traded contract, will start 8 cents to 10 cents a bushel higher at the Chicago Board of Trade. In overnight electronic trading, the contract jumped 8 3/4 cents, or 1.3%, to $6.92 1/4 a bushel.
Futures should feel a boost after the U.S. Department of Agriculture reported Monday that exporters sold 116,000 tons of corn to unknown destinations for delivery in the 2010-11 marketing year, which ends May 31. Market participants suspect the buyer may be China and that China may continue buying to replenish reserves for domestic use or, potentially, for selling to disaster-battered Japan down the line.
"Of course we have to assume it's China," said Jerry Gidel, analyst for North America Risk Management Services, about the buyer.
Strong demand has breathed new life into corn following a recent sell-off fueled by concerns about the world economy and reduced demand from Japan, the world's top corn importer. Corn futures are down nearly 6% since reaching a 32-month high earlier this month on supply concerns.
Talk about sales to China erupted when the USDA on Thursday said private exporters struck deals to sell 116,000 tons of corn for delivery to unknown destinations during the 2010-11 marketing year, which ends May 31. The sale is separate from the one announced Monday. Often a U.S. exporter agrees to sell a commodity to an intermediary that has not yet settled the final foreign destination of the commodity.
China's purchases are particularly significant because inventories of corn in the U.S., the world's No. 1 grain grower and exporter, are projected to hit 15-year lows this year. Significant purchases by the resource-hungry nation, which has strived for self-sufficiency, would be an unexpected source of demand for the market and could drain supplies further.
"Continued strong ethanol production and export demand, as well as the potential for China to import more corn, indicates that corn prices still need to move higher in order to ration demand," Susquehanna International Group told clients in a note.
Market participants are worried U.S. farmers may not expand plantings enough this spring to replenish supplies as other high-priced crops also look attractive to growers. Private analytical firm Informa Economics on Friday projected plantings below a recent USDA estimate.
In other news, strength in crude oil futures should add strength to grain prices, as ethanol is made from corn, traders said. Weakness in the U.S. dollar adds support because it makes U.S. grains more attractive to foreign buyers, they said.