U.S. corn futures advanced Tuesday as Mexico made a rare purchase nearly two years out, sparking concerns that tight supplies are here to stay.
Corn for July delivery, the most actively traded contract, rose 4 1/2 cents, or 0.6%, to $7.36 1/2 a bushel at the Chicago Board of Trade. Corn for December delivery, which represents the crop that will be harvested this autumn, jumped 9 1/2 cents, or 1.4%, to $6.76 1/2 a bushel. Soybean futures advanced as well, while wheat tumbled.
Mexico's purchases of 822,960 metric tons of corn surprised traders because two-thirds was for delivery in the 2011-12 marketing year, which begins in September, and one-third was for delivery in the 2012-13 marketing year, which begins in September 2012. It is unusual for buyers to book corn more than a year ahead of time, as the outlook for the next crop is unknown.
The deals indicate Mexico is protecting itself against the potential for a disappointing harvest this autumn, analysts said. There is little room for error with the crop because inventories from the last harvest are expected to reach a 15-year low this year.
"They're trying to secure inventory," said Larry Glenn, broker and analyst at Frontier Ag, a brokerage firm in Kansas.
Traders are keeping a close eye on demand after corn futures reached a record high in April on strong sales to foreign buyers and to domestic ethanol and livestock producers. Prices have since pulled back about 6%.
Mexico's purchases came after corn prices tumbled 2.9% Monday under pressure from forecasts for favorable crop weather. Tuesday's sales underscore the fact that it will be difficult for farmers to rebuild inventories in the coming year because grain users will buy aggressively when prices decline, said Jim Gerlach, president of A/C Trading, a brokerage in Indiana.
The U.S. Department of Agriculture is expected to tighten its outlook for old-crop and new-crop inventories in its monthly crop report Thursday. The agency will forecast corn inventories at 800 million bushels for the end of the next crop marketing year Aug. 31, 2012, down 11% from last month's estimate, according to the average prediction of 19 analysts surveyed by Dow Jones Newswires.
In other news, soybean futures felt support from uncertainties surrounding the upcoming crop as well. Planting in the eastern Midwest continued to lag due to wetness, encouraging traders to maintain risk premium in the market, analysts said. Soybeans for July delivery rose 10 3/4 cents, or 0.8%, to $13.94 a bushel.