Corn futures at the Chicago Board of Trade leaped over 3 percent to the highest level in a decade on Thursday on fund buying tied to forecasts implying the corn supply in the United States will shrink more next year that earlier estimates, traders and analysts said.
CBOT corn closed up 1-1/2 to 13 cents per bushel, with December up 11-1/4 at $3.44-3/4 per bushel. Volume was huge estimated at 375,314 futures and 98,455 options. If realised, the futures and options trade would be among the top 10 trading day's in CBOT history for corn.
"I think one of the keys is there is a bit of panic buying by the consumer. I think everybody expected a bit of a pullback in prices yesterday but it didn't happen and there was big volume overnight," said Steve Freed, analyst for ADM Investor Services.
Traders said a large portion of the speculative buying of corn was stemming from the electronic e-cbot trading platform as funds and proprietary traders place their bets that corn prices will rise further amid brisk demand for corn from the export, livestock and biofuels sectors.
The December contract surged its 20 cents per bushel trading limit at one point in the trading session but demand began waning at that level. Increased hedge selling tied to a spate of farmer selling helped trim corn futures gains by the close.
Investment fund buying continues to boost corn futures and the nearby December surged to new 10 year highs overnight for a spot contract. The trading volume was huge overnight at nearly 21,000 lots and new contract highs were set in the nearby five months.
On Thursday, fund buying was estimated at between 10,000 and 12,000 lots and the electronic screen trading volume was heavy with over 177,000 contracts traded overnight Wednesday and on Thursday.
Early Thursday trade sources said Memphis-based analytical firm Informa Economics pegged 2006 US corn production at 10.729 billion bushels and trade house FC Stone late on Wednesday estimated the crop at 10.8 billion bushels.
Both estimates were below USDA's October forecast for 10.9 billion and there are expectations for USDA to trim its forecast in its next crop report to be released on Thursday, November 9.
The outlooks for declining corn production coincides with prospects for demand for corn to continue surging, led by the explosion in the biofuels industry, especially in the ethanol sector.
"Funds are buying because of the ethanol and biodiesel growth that they see and there's now a big acreage race between corn and beans. When corn prices go up it pulls beans up," said Vic Lespinasse, floor spokesman for A.G. Edwards.
Also, the export pace for US corn continues at a brisk pace despite the rise of corn prices in late 2006 to the highest level since the mid-nineties.
The spot CBOT corn futures contract rallied to a record high $5.54-1/2 per bushel in the late summer of 1996. "This whole market is exceeding expectations time wise by probably 3 or 4 months," a trader said.
USDA on Thursday said export sales of US corn last week totalled 1,027,300 tonnes, near the high end of trade estimates for 900,000 to 1,100,000 tonnes and separately USDA also said exporters sold 132,000 tonnes of US corn to an unknown destination.
There are strong signals that China, in a move to retain corn and feed grains for domestic use, is beginning to reign in exports of corn. Trade sources in Beijing early Thursday said China was slowing corn exports but likely would continue exporting feed wheat.