Grains Cap Biggest Rally in 7 Months on China Demand Outlook

  • Traders ignore bearish supply data issued Tuesday by USDA
  • Volumes are more than double 100-day averages for this time

Grain traders are shrugging off signs of bigger supplies and sending prices to their biggest rally in seven months on an improving outlook for Chinese demand.

The Bloomberg Grains Subindex jumped 3.7 percent in two days, the largest such advance since mid-September. Soybean futures reached the highest since August, while corn rose to its highest this year.

The gains come one day after the U.S. Department of Agriculture predicted bigger global crop stockpiles. Even with the supply news, optimism for demand is dominating the markets after government data showed China’s exports in March jumped the most in a year and declines in imports narrowed, adding to signs of economic stabilization in one of the world’s largest agricultural buyers. At the same time, traders are watching potential weather concerns for the upcoming North American growing season.

“The global market reaction is a vote of confidence in the China economy and commodities in general,” Bill Nelson, senior economist for St. Louis-based Doane Advisory Services Co., said in a telephone interview. “The grain markets are looking at an improving agricultural demand story in China. The forecasts for an earlier arrival of La Nina weather conditions is certainly a persuasive argument to the bulls.”

Soybeans Jump

Soybean futures for May delivery climbed 2.1 percent to close at $9.5575 a bushel at 1:20 p.m. in Chicago. Prices earlier touched $9.5775, the highest for a most-active contract since Aug. 12. In March, China’s imports of the oilseed climbed 36 percent from a year earlier to 6.1 million metric tons, a record high for the month.

Corn futures for July delivery rose 3.1 percent to $3.77 a bushel on the CBOT, after touching $3.7725, the highest since Dec. 18. Wheat prices rose a second day.

Trading in corn, soybeans and wheat was more than double the 100-day averages, data compiled by Bloomberg show. Volume for soybean futures on Tuesday reached the third-highest ever, exchange data compiled by Bloomberg show.

The chances of a La Nina pattern developing this year have increased to 50 percent as the Pacific Ocean cools, Australia’s Bureau of Meteorology said Tuesday. The climate pattern typically brings warm temperatures to the Midwest, according to Don Keeney, senior agricultural meteorologist at MDA Information Systems Inc. The transition from El Nino to La Nina will probably create some pockets of drought this year in U.S. growing regions, he said Wednesday in a telephone interview.

Money managers have backpedaled from a record bearish wager against corn, soybean and wheat futures they held in early March. The combined net-short position as of last week was 155,862 contracts, compared with 392,772 held on March 1, U.S. government data show. On Tuesday, open interest in agriculture futures, options and forwards on the Chicago Mercantile Exchange jumped by 80,000 contracts, CME data show.

“The big volume and rise in open interest signals a new urgency to cover shorts,” Diana Klemme, vice president at Atlanta-based Grain Service Corp., said in a telephone interview. “The fund buying has overwhelmed light farmer sales.”

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