Strong demand and ongoing supply concerns should spark a turnaround in U.S. corn futures after the market dropped nearly 4% from this week's 31-month high, analysts said Thursday.
Corn for May delivery, the most-active contract, fell 5 3/4 cents, or 0.8%, to $6.96 1/2 a bushel at the Chicago Board of Trade. The contract has lost 27 3/4 cents since surging to a new high Tuesday.
Futures pulled back on selling linked to global economic uncertainty and unrest in North Africa. Yet, users of corn remain nervous about supply levels after the U.S. Department of Agriculture said inventories will remain tight through the upcoming marketing year, which begins Sept. 1.
USDA's Chief Economist Joe Glauber predicted at an annual outlook conference that farmers will sow 4.3% more acres of corn this spring to take advantage of high prices, which have soared in an attempt to slow demand. The large plantings don't guarantee a large harvest because Mother Nature could throw growers a curveball.
"The market can't drop too far without having more information than it's got as far as yield," said Alan Brugler, president of Brugler Marketing & Management, a brokerage firm in Nebraska.
The USDA forecast U.S. farmers will plant 92 million acres of corn and harvest a record crop of 13.73 billion bushels in the upcoming 2011-12 marketing year. It predicted inventories, known as ending stocks, would rise 28% to 865 million bushels, which is still below the one billion-bushel mark seen as a comfortable level of supplies.
Rabobank said grain prices must rebound in order to ration demand and secure additional acres this spring. The bank said there is a risk of further losses in the near-term but labeled medium-term prospects as "bullish."
"In our view, this recent downward trend in prices is not sustainable," the bank said, "given the multi-year low level of stocks across most grains and oilseeds."
Ethanol futures edged higher, despite weakness in the corn market. Those who blend ethanol into gasoline "have plenty of good reasons to blend more ethanol" due to improving margins, says Carl Norden, analyst for brokerage Country Hedging. Ethanol for May delivery ended up 0.5 cent, or 0.2%, at $2.505 per gallon at the CBOT.
Oat futures, meanwhile, slumped with the corn, wheat and soybean markets. Oats for May delivery drop 15 cents, or 3.9%, to $3.70 a bushel.
-By Tom Polansek, Dow Jones Newswires; 312-341-5780; tom.polansek@dowjones.com
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