Corn fell from a two-month high as U.S. farmers stepped up sales of inventories from last year’s record harvest, and slumping oil prices eroded the appeal of grain used to make ethanol.
Futures in Chicago jumped 9.6 percent from the end of March through yesterday, and cash prices tracked by the Minneapolis Grain Exchange are the highest in more than two months. Crude oil tumbled to a 12-week low in New York as a strengthening dollar curbed the appeal of commodities as an alternative investment.
“We saw a flood of farmer-selling after yesterday’s rally,” said Richard Feltes, the director of commodity research for MF Global Holdings Ltd. in Chicago. “The rally in the dollar and the crude-oil decline encouraged some selling” by hedge funds and other speculators, Feltes said.
Corn futures for July delivery fell 5.25 cents, or 1.4 percent, to $3.73 a bushel on the Chicago Board of Trade, the biggest drop since April 27. Yesterday, the price reached $3.85, the highest level for a most-active contract since March 5.
The commodity has dropped 10 percent this year as the U.S. Department of Agriculture forecast a 13 percent jump in combined output from Argentina and Brazil, the biggest exporters after the U.S.
Prices also fell on concern that speculators had overestimated China’s demand for U.S. corn, Feltes said.
Hedge-fund managers, who had been betting on price declines since late March, were expecting a rally as of May 4, according to government data. Net shorts totaled 42,672 futures and options on that date, compared with a net-long position of 16,362 on April 27, according to the Commodity Futures Trading Commission shows.
Since April 28, the USDA has announced two purchases of corn by China of 484,000 metric tons altogether, the first major buys by the Asian nation since 2001. At the same time, the number of new positions in futures rose by 51,442 contracts, or the equivalent of 6.5 million tons. Open interest climbed to 1.2 million contracts yesterday, the highest since Aug. 8.
“The amount of corn sold to China to date is still relatively small compared with the large Chinese demand-base,” Feltes said. “The big surge in open interest from speculative fund-buying the last two weeks is much greater than whatever China has purchased from the U.S. We have seen a dramatic shift in ownership from producer-cash positions to speculative-fund positions.”
China, the world’s second-biggest grower, will produce 155 million tons of the grain in the year that ends Sept. 30, matching projected consumption, the USDA said May 11. It has been 14 years since China was a net importer of corn.
Corn is the biggest U.S. crop, valued at $48.6 billion in 2009, government figures show. The U.S. is the top producer, exporter and consumer.