A burst of frenetic buying sent U.S. corn and soybean futures sharply higher on Wednesday after months of sluggishness, rewarding farmers with prices they thought were unattainable just weeks ago due to massive crop inventories.
But traders said the soybean rally could be short-lived. They cited a sharp jump in the premium of near-term contracts over those for later delivery.
Searching for reasons behind the surge, traders pointed to a host of factors, including an influx of money from commodity funds and exporters looking for alternatives to South American supplies that may not be available.
The buying represents a "fund-money freight train," said Angie Setzer, vice president of grain for Citizens LLC.
"A lot of the fundamentalists, who I still think will be right in the long run, have gotten chewed up in the short run," said David Durra, an independent grain trader and analyst with AgSpread Analytics.
The July soybean contract reached the highest level for a most-active contract since last summer, in record volume at the Chicago Board of Trade and topped $10 a bushel, a price target farmers have been lusting after for months.
July corn touched the highest level for a most-active contract since August, topping a sought-after target of $4 a bushel.
Traders estimated commodity funds were net buyers of 17,000 to 45,000 contracts of corn and 18,000 to 30,000 contracts of soybeans, by far exceeding their activity on typical days.
The markets had been range bound for months with the world awash in crops and U.S. export demand weak due to competition from shippers in South America, who gain an advantage from the dollar's strength.
But unfavorable rains on Argentina's crops and political uncertainty in Brazil stemming from President Dilma Rousseff's potential impeachment have fueled expectations that some export business will shift to the United States, traders said.
"Word's out on the street that South America may be caught short," said Tom Grisafi, broker for Advance Trading. "Right now they might have commitments sold that they can't meet, and that's creating a massive panic in the market."
The May and July soybean contracts each surged more than 20 cents, suggesting strong demand for immediate supplies. The November contract, which reflects the autumn U.S. harvest, rose only 3-3/4 cents, indicating less concern for stockpiles later this year.
The July-November soybean spread shot up 21-3/4 cents, for its biggest daily spike in 10 months.
For farmers, the rallies have provided an unexpected opportunity to sell grain they've kept in storage for months.
"We're just happy to take it," Iowa farmer Caleb Hamer said about the rally.