Tuesday July 29, 2014

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U.S. corn touches seven-week high on plunge in ethanol stocks

Wheat posts biggest gains in a week

U.S. grains rose on the eve of a major crop report, with corn futures notching a seven-week high on Wednesday after the ethanol stockpile plunged to the lowest level since December 2011.

Wheat futures rallied to a five-week high while soybeans trimmed earlier losses to touch a two-week top.

Government data showed production of the grain-based biofuel declined but ethanol stocks dropped 5.5 per cent in the largest draw down since July, indicating strong demand from blenders who mix ethanol into nearly every gallon of gasoline sold in the United States.

The gains in corn, soybean and wheat futures were front-loaded in nearby contracts at the Chicago Board of Trade (CBOT) in "bull spreading" on expectations the U.S. Department of Agriculture will confirm ideas of razor-thin quarterly stockpiles in the world's largest producer of the commodities.

USDA will also release estimates of U.S. spring plantings in one of the most closely-watched crop reports of the year, which is scheduled for release on Thursday, three hours before trade halts for a three-day weekend.

The U.S. Energy Information Administration said ethanol stocks fell to 17.4 million barrels last week, down from 18.5 million barrels in the previous week.

"This week's ethanol stats were about as bullish as it gets, reflecting our expectations for very strong demand," said Linn Group analyst Jerrod Kitt.

Corn futures bounded higher in the wake of the report, with the benchmark May contract finishing five cents higher at $7.35-1/4 per bushel while May soybeans climbed six cents to $14.53-3/4 (all figures US$).

"Obviously when you look at the ethanol data this morning, the production number was nothing to get excited about but the stock draw was pretty big," said Tregg Cronin, market analyst at CHS Hedging in St. Paul, Minn.

Trading volume was light in cautious dealings with analysts expecting the government to show the largest U.S. corn plantings in 77 years and the most soy seedings ever.

CBOT May wheat futures posted their biggest gains in a week, settling 5-1/4 cents higher at $7.36-3/4 per bushel.

Investment funds were said to have bought 6,000 corn contracts, 3,000 soy contracts and 2,000 wheat contracts.

Winter damage

Wheat was supported after freeze concerns prompted investors to cover their bearish bets. Bitter-cold weather earlier this week in the southern U.S. Plains region that grows most of the wheat in the United States may have damaged plants emerging from winter dormancy.

"It will take a couple weeks to determine if there's been any losses," in production, Jefferies Bache analyst Shawn McCambridge said.

Noncommercial traders, including hedge funds, have narrowed their short or bearish stake on wheat futures, last week trimming their net short position to the smallest since January, regulatory data shows.

But even as investors have turned more bullish on the market, cash wheat prices in the United States have declined. Bids in the U.S. barge export market fell to the lowest point since September amid cheaper supplies in Europe and elsewhere. A new U.S. crop will also be harvested as early as June.

"This market is gaining strength on outside influence, on fund influence... It's been surprising how well (wheat) has hung in there with the overbought conditions. The export tenders that have been issued in recent days have not come to the U.S.," McCambridge said.

Iraq, one of the world's largest importers of wheat, bought 350,000 tonnes of the grain from Australia in a tender, a trade ministry statement said.

-- Michael Hirtzer reports on the grain and livestock markets for Reuters from Chicago. Additional reporting for Reuters by Carey Gillam in Kansas City.


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