US corn gains on Chinese buying, soy firm on weather

SINGAPORE: US corn futures extended gains on Friday, as China's purchases continued to buoy the market, while soybeans were steady after closing higher in the previous session, supported by dry weather in the US Midwest.

Wheat ticked higher in early Asian trade, tracking grains in corn futures.

FUNDAMENTALS

The US Agriculture Department confirmed the sale of 540,000 tonnes to China before the start of the US session on Thursday. Another 300,000 tonnes were sold to an unknown destination, which traders said was China.

Soybean futures have been supported by concerns about dry conditions hampering crop development this summer.

The bump in US corn exports - Egypt and South Korea also made recent deals -- came due to a sharp drop in prices following the USDA's bigger-than-expected acreage report last week.

The price drop has provided a buying opportunity but demand could dry up quickly if prices climb back toward recent highs. USDA, which has confirmed about 555,000 tonnes in corn sales to China for the 2010/11 marketing year, has forecast Chinese corn imports of 1.5 million tonnes for 2010/11 marketing year and 500,000 tonnes for 2011/12.

While export demand lifted corn prices, the upside potential has been limited as three US senators reached a deal to repeal the $6 billion per year ethanol tax credit by the end of July. The full Congress must still vote on the agreement.

A repeal would be a blow to the corn market but the market is still underpinned by a government mandate to make 12.6 billion gallons of ethanol from corn this year -- a figure that will rise to 15 billion gallons by 2015.

Commodity funds were net buyers of an estimated 7,000 contracts of Chicago Board of Trade corn futures on Thursday, trade sources said. They were net buyers of 4,000 soybean contracts and bought 2,000 wheat.

MARKETS NEWS

The euro kept a tentative grip on overnight gains in Asia on Friday, cheered by the European Central Bank's pledge to provide Portuguese banks with liquidity, but trading is likely to be subdued ahead of the highly anticipated US jobs report.

Oil jumped on Thursday by the biggest percentage in two months, hitting a three-week high as US data on jobless claims and retail sales came in stronger than expected, raising hopes that economic recovery was gaining traction.

US stocks closed sharply higher and the Nasdaq notched an eighth day of gains on Thursday as improved labor market and retail sales data added to optimism a day before the critical June payrolls report.

Copyright Reuters, 2011