Grain Traders Finally Getting Invited to the Commodity Party

(Bloomberg) -- After lagging behind metals and energy for the past year, corn prices got a jolt higher on Wednesday as March futures touched a seven-week high. Wheat climbed the most since July, and soybeans also rose.

Global corn inventory before this year’s North American harvest is projected to drop 9.7 percent, the first annual decline since 2011, U.S. government data show. At the same time, recent dry weather in Argentina and excessive rain in Brazil are threatening yields and adding to the tighter supply outlook. In the U.S., drought is expanding across the center of the country.

A drop in the dollar is also adding to bullish sentiment as it improves prospects for U.S. grain exports. The Bloomberg Dollar Index fell to a three-year low on Wednesday.

“We have already factored into prices a tremendous amount of negative news, and now there are signs this year’s crop is getting smaller,” Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa, said in a telephone interview Wednesday. “Some are deciding that the Trump Administration will be good for the economy and more bilateral trade agreements will benefit U.S. agriculture."

Grain Traders Finally Getting Invited to the Commodity Party

The weaker greenback is helping to reverse a recent trend that exacerbated a rout for crops. Since June 2011, the dollar climbed more than 20 percent, while corn fell more than 50 percent.

The huge decline for grain costs helped boost use in livestock and fuel. Robust demand coupled with the fact that prices have fallen near or below the cost of production in most nations means that any weather threats or other production problems will leave the market vulnerable to major rallies, Roose said.

Corn futures for March delivery rose 1.5 percent to close at $3.565 a bushel on the Chicago Board of Trade after touching $3.57, the highest for the contract since Dec. 5. Wheat futures jumped 2.7 percent to $4.33 a bushel. Trading volumes rose in both corn and wheat on Wednesday, which may indicate that hedge funds are closing out some of their large short positions, Roose said.

©2018 Bloomberg L.P.