U.S. grain and soy review: Corn surges again on supply fear

U.S. corn futures soared to their highest prices since the food crisis of 2008 Friday as a decline in inventories reported this week continued to fuel supply concerns.

For a second straight day, corn futures hit the daily limit on one-day gains at the Chicago Board of Trade, before falling back slightly to close up 6.2% to $7.36 a bushel. The limit on gains was expanded to 45 cents from the standard of 30 cents Thursday and will revert back to 30 cents Monday.

The strength in corn futures wasn't enough to propel soybean and wheat futures higher, as profit-taking by traders and limited concerns about supplies of the crops drove a modest selloff.

The U.S. Department of Agriculture sparked the rally when it reported Thursday that corn inventories as of March 1 totaled 6.52 billion bushels, down 15% from a year earlier and 2.7% below the average expectation of analysts surveyed by Dow Jones Newswires. The tighter-than-expected inventories provided new evidence that high corn prices aren't slowing demand for dwindling supplies.

"The USDA stocks report [Thursday] really let the corn market know that serious price rationing needs to take place if we don't want to run out before harvest," said Kayla Hoffman, a grain merchandiser in North Dakota.

Corn futures have more than doubled since last summer on strong demand, with the latest surge bringing the market near its all-time high of $7.65 a bushel reached in the summer 2008. Steady buying of the grain by livestock and ethanol producers has drained supplies, which are projected to reach a 15-year low by the end of the marketing year Aug. 31.

Prices for agricultural commodities have soared since last summer as poor weather curbed harvests around the world and global demand continued to grow. High prices for corn and other crops have contributed to rising food costs around the globe, a reminder of food riots from summer 2008. High food prices have contributed to unrest in the Middle East, and a United Nations world food-price index stands at record highs. Tighter-than-expected corn supplies are "not going to allow any relief to high food prices right away," said Dale Durchholz, analyst for AgriVisor, an agricultural advisory firm in Illinois.

Indeed, the USDA is expected to cut the end-of-season supply outlook in its monthly crop report released next week. The agency could eventually peg supplies as of Aug. 31 at a record low.

Prices are expected to work higher, as the market attempts to slow demand. Goldman Sachs, which said last month that prices in the $6 to $7 range didn't look sustainable, raised its three-month price outlook to $8.60 a bushel.

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