U.S. corn futures are expected to climb Friday after the government announced a major sale to unknown destinations, adding fuel to talk of demand from China that has lingered in the market for more than a week.
Traders and analysts predict corn for May delivery, the most-actively traded contract, will open up 15 cents to 20 cents a bushel at the Chicago Board of Trade. In overnight electronic trading, the contract rose 10 1/4 cents, or 1.5%, to $7.12 3/4 a bushel.
Futures should soar as the U.S. Department of Agriculture reported private exporters struck deals to sell 1.25 million tons of corn to unknown destinations. One million tons, a large amount, is for delivery in the 2010-11 marketing year that ends Aug. 31, meaning the buyer will take delivery before farmers have a chance to replenish tight supplies with corn from the next harvest.
"This is clearly bullish," said Rich Nelson, director of research at Allendale, an agricultural research and brokerage firm in Illinois.
The sale, which traders saw as confirmation of widespread chatter about purchases by China, exceeded many market participants' expectations. It also topped the USDA's forecast for Chinese corn imports of 1 million tons in the 2010-11 marketing year.
Talk about sales to China emerged late last week after the government announced a smaller sale to unknown destinations, which traders suspected was China. 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.
The latest sale puts an expected strain on inventories, which the government had already projected would drop to a 15-year low by Aug. 31. Prices will need to climb to slow demand for limited remaining supplies, traders said.
Corn futures reached 32-month highs earlier this month on strong demand and concerns farmers will not plant enough this spring to rebuild inventories. The market is about 3% off the highs.
Friday's sale "definitely demonstrates a need" for corn, said Shawn McCambridge, senior grains analyst at Prudential Bache. He said the size of the sale was about double what he had been expecting.
If the buyer is China, as many believe, the sale represents its first major purchase since buying heavily last summer. China stepped out of the market in part due to soaring corn prices. Yet, the nation may no longer be able to put off its need for the grain, which it uses mainly for livestock feed and fuel production, analysts said.
China is the world's second-largest consumer of corn after the U.S., and demand is rising as the nation's hunger for pork and other meats grow. The nation's corn stocks are at a historically low level, suggesting China may have to import large volumes, Standard Chartered wrote in a research note. The U.S. is the world's top corn exporter.