Grain Futures Rally on Weather Concerns, Fund Buying

Benjamin Parkin

CHICAGO--Grain futures jumped to multimonth highs on Wednesday as concerns about hot and dry weather in U.S. growing regions pushed speculators into peeling back pessimistic bets.

Corn futures at the Chicago Board of Trade broke out of a narrow trading band for the first time in months, and reached a near 12-month high. Contracts for July delivery closed up 2% at $3.84 3/4 a bushel. CBOT July wheat futures gained 2.1% to end at $4.44 3/4 a bushel, the highest since mid-February.

Managed funds have held enormous net short positions in grain and soybean futures in recent months, despite the weather-risk premium typically factored into prices during the planting and growing seasons. Funds have bet that supplies will be ample again this year, given elevated global production and stockpiles.

Updated weather forecasts now show hot and dry weather developing in parts of the Midwest and northern Plains, including drought-like conditions in North and South Dakota's spring wheat growing regions. That's pushed the funds to pull out of some of those pessimistic bets, lest the weather trouble translate into a notable drop in U.S. production, analysts say.

"It's starting to be critical for spring wheat. If we don't get some rain up there in the next 10 days, they're going to be in some serious doodoo," said Charlie Sernatinger, head of grain trading at brokerage ED&F Man Capital in Chicago. The Midwestern corn crop is also under stress, he added.

A weaker dollar overnight initially encouraged buying, though the greenback steadied and rose on Wednesday morning. A sell-off in crude oil futures - which fell below $46 a barrel - limited gains in soybean contracts, which compete with crude as a fuel source. CBOT July soybean futures rose 0.8% to $9.30 3/4 a bushel.

The potential impact of Midwestern weather on soybeans is minor, analysts said. Some were skeptical that the rally would last, despite the fund short-covering.

"The only reason to sustain a rally in corn and soybeans is if the threat to new crop is great enough to necessitate rationing demand," said Arlan Suderman, chief commodities economist at brokerage INTL FCStone in Kansas City, Mo., in a note to clients. "We don't have any evidence of that at this time."

Minneapolis spring wheat futures, which recently led gains in the grain-and-soybean sector by rallying just short of a two-year high, slid on Wednesday as traders locked in profits. July contracts fell 0.5% to $5.95 1/2 a bushel at the Minneapolis Grain Exchange.

Write to Benjamin Parkin at benjamin.parkin@wsj.com

(END) Dow Jones Newswires

June 07, 2017 15:55 ET (19:55 GMT)