Poor yields to bolster corn

CHICAGO: Grain markets have been given a shot in the arm by the possibility of another US economic stimulus from the Federal Reserve, whose $600 billion bond-buying exercise lit a fire under commodity markets.

Fed Chairman Ben Bernanke left the dollar open to such a prospect in his closely watched speech in Jackson Hole, Wyoming the same location where a year ago he signalled the launch of QE2, a second round of quantitative easing, that ended in June.

Commodities benefited from the controversial plan due to the fear of inflation from the Fed's printing of money to buy bonds in the hope of keeping short-term interest rates low.

Bernanke on Friday stopped short of outlining any new measures to invigorate the ailing economy but said the central bank "has a range of tools that could be used to provide additional monetary stimulus."

The possibility of additional stimulus lifted the Dow Jones industrial average more than 1 percent on Friday, and the Reuters-Jefferies CRB index, the global benchmark for commodities, by nearly 1 percent.

Grain prices at the Chicago Board of Trade surged more than 2 percent amid a wave of buying by funds, which were big net purchasers of about 20,000 contracts of corn on the day.

It was the fourth straight week of gains for CBOT corn, matching a similar streak in April. It was also the fourth straight week of gains in wheat and the third for soy.

"He didn't give the market the green light for QE3. He also didn't give the market the red light for QE3," said Kevin Caron, a market strategist at Stifel, Nicolaus & Co in Florham Park, New Jersey.

"By implying that inflation is viewed as not a concern, it leaves the possibility for something down the road," he said.

Analysts said corn prices will have fundamental support this week in the wake of reports of poor yields in the Midwest grain belt from the annual Pro Farmer crop tour.

After a week of inspecting hundreds of corn and soybean fields in the Midwest, the tour on Friday estimated the US corn yield this year at 147.9 bushels per acre compared with the US Agriculture Department forecast of 153 bushels.

The tour pegged soybean yield at 41.8 bushels per acre, compared with the USDA's forecast of 41.4 bushels.

Grains analyst Dan Cekander of Newedge USA said the tour participants saw corn yields in Iowa, Illinois and Indiana at lower than those estimated by the USDA last year.

Additionally, he said prices were being supported by farmers reluctant to sell their corn crop until they begin the harvest next month and see the yield for themselves.

Grains analyst Don Roose of US Commodities said prices for December CBOT corn futures, which closed at $7.67 a bushel on Friday, were trading as if corn yield this year would be around 148 bushels per acre.

He said the shrinking corn crop would support prices, which could be a strain for end-users.

"The end-game of this is you'll have high grain prices that will not work into livestock and ethanol rations," he said. "They'll have to slow down their rations."

High feed costs have hit the chicken industry particularly hard, analysts said, adding that they expected a large drop in chicken production in the coming months.

Grains analyst Dan Basse of AgResource Co said there was an influx of funds into grain markets on Friday.

He said corn prices, however, could face pressure from end-users increasingly switching to wheat for feed.

Copyright Reuters, 2011