Corn Advances as QE3 Boosts Commodities, U.S. Crops Shrink

Corn posted the biggest gain in two weeks after the Federal Reserve announced a third round of stimulus measures to bolster the U.S. economy, improving prospects for grain demand as a drought erodes output.

Global equities and commodities jumped after the Fed said yesterday it will expand holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month. U.S. corn production in 2012 will slump 13 percent to a six-year low, after the worst drought in almost six decades hurt crops, the government said on Sept. 12.

“The Federal Reserve’s action will have a long-lasting impact because it may revive growth and inflation,” Shawn McCambridge, a senior grain analyst at Jefferies Bache LLC in Chicago, said in a telephone interview. “Higher prices can be sustained because of the smaller U.S. crops this year.”

Corn futures for December delivery advanced 1.1 percent to close at $7.82 a bushel on the Chicago Board of Trade, the biggest gain since Aug. 29. The advance pared this week’s loss to 2.2 percent. The grain has risen 21 percent this year, reaching a record $8.49 on Aug. 10.

Crude-oil prices climbed to the highest since May, signaling higher demand for grain-based ethanol in the U.S., McCambridge said. Gasoline futures for October delivery are 59.74 cents a gallon higher than ethanol futures in the same month, the widest premium since May, boosting incentives to blend more of the corn-based fuel, McCambridge said.

Corn is the biggest U.S. crop, valued at $76.5 billion in 2011, followed by soybeans at $35.8 billion, government figures show.

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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