Corn Tops $7 As Supply Shortage, Slower Output Support Grains

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Corn futures are flirting with $7 for the first time in eight years, buoyed by strengthening global demand and tightening inventories. Until feedstock supplies increase, corn prices may still have more room for growth. As it inevitably exceeds the key $7 mark, will $8 be the next threshold to surpass?

July corn futures surged $0.16, or 2.35%, to $6.9575 per bushel at 17:05 GMT on Tuesday on the Chicago Board of Trade (CBoT). Corn prices have been on a tear this year, rallying more than 43% year-to-date. Over the last 12 months, corn contracts have soared 120%.

Despite higher prices, producers have not been able to increase their output levels. Bearish weather conditions in South America have impacted production capabilities in Argentina and Brazil. Brazil planted its corn crop late, while droughts in Argentina affected its harvest.

As a result, foreign markets are turning to the US and even Ukraine for their corn needs. China has been one of the largest consumers to shift its purchases to the US, making the transition earlier this year. This could have larger implications for the US since its crop season is relatively short, as evident last summer.

Falling US crop inventories and export commitments are making the broader market anticipating a long-term uptrend for grains. Overseas, Ukraine and Romania are reporting stronger output forecasts, but their production levels would not be enough to satisfy the appetite for a market like China.

Louise Gartner of Successful Farming had this summary:

“Bottom line: demand is still torrid, current supplies are very tight; and new crop supplies are expected to only be barely enough to satisfy current demand. There is NO room for production losses. Any hint of weather issues in the US Midwest and grains explode higher. The bull market is alive and well until we rebuild stocks especially for corn and soybeans, but wheat as well, and that is unlikely to happen with this year’s crop.”

Does this mean $8 is the next price to cross? Perhaps investors could look to $9 or even $10.

In other agricultural commodities, June wheat futures rose $0.0525, or 0.73%, to $7.23 per bushel. June soybean futures added $0.125, or 0.82%, to $15.365 a bushel. June coffee futures picked up $0.0105, or 0.75%, to $1.413 per pound.

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