U.S. corn futures are expected to start near a 2 1/2-year high Friday as a lower-than-expected government supply estimate continues to fuel gains.
Traders and analysts predict corn for May delivery, the most-actively traded contract, will open 40 to 45 cents a bushel higher at the Chicago Board of Trade. The daily trading limit is expanded to 45 cents after several contracts climbed the standard limit of 30 cents Thursday. In overnight electronic trading, the contract ended up 41 1/2 cents, or 6%, at $7.34 3/4 a bushel.
"The demand-rationing mindset by the trade has been re-ignited," said Mike Zuzolo, president of Global Commodity Analytics & Consulting, a brokerage firm in Indiana.
Federal forecasters renewed supply concerns by estimating Thursday that corn inventories as of March 1 were 6.52 billion bushels, down 15% from a year earlier and 2.7% below the average of analysts' estimates. The tighter-than-expected inventories indicated high prices had not curbed strong demand.
Market participants are worried farmers will not be able to significantly replenish supplies with the next corn crop, which will be planted this spring and harvested next fall. Poor weather could delay or disrupt seeding, resulting in fewer planted acres or reduced output.
Private weather firm Telvent DTN on Friday projected wet weather will return to the Midwest, the key growing region for corn, during the weekend. Cool weather will follow next week, which "likely will delay early spring fieldwork," according to the firm.
Futures prices must rise to factor in four potential outcomes of planting delays, Zuzolo said. They are the risk for lower-than-expected plantings, a lower-than-expected average yield, increased buying from grain users worried about shrinking supplies, and reduced selling by farmers and elevators who want to hold on to their grain until prices peak.
"I strongly suspect that both domestic end-users and global end-users (demand-side) will be working hard to secure extra coverage of corn bushels as weather continues to promote cold-wet in the Midwest," Zuzolo told clients in a note.
The U.S. Department of Agriculture estimated farmers will plant 92.2 million acres, up nearly 5% from last year, in an attempt to cash in on high prices. Futures have climbed 126% since last summer on strong demand and concerns about tightening supplies. The rally has brought corn near its all-time high of $7.65 a bushel, reached in summer 2008.