Corn prices jumped 4% throught $7 a bushel after America, citing strong demand from ethanol plants, cut its forecast for reserves of the grain by four times as much as the market had expected.
US Department of Agriculture officials cut by 70m bushels to 675m bushels (17.1m tonnes) their forecast for domestic corn inventories at the close of the 2010-11 crop year.
The downgrade beat analysts' expectation of a 16m-bushel cut, and left America's corn supplies on course for a historic low once buoyant levels of demand, from livestock farmers as well as industrial users, was taken into account.
The scale of the revision reflected record output of corn-based ethanol at the end of 2010, and "rising prospects" for production of sweeteners, such as high fructose corn syrup, based on the grain.
While corn syrup's image has suffered some damage in the US because of, disputed, links to obesity, it is gaining popularity in many other countries, such as Mexico, in the face of sugar prices at their highest in decades.
Price impact
Thursday's data were seen as further boosting prices of corn, lowering the grain's supplies, as measured by the stocks-to-use ratio, to 5.0%, on USDA calculations "the same as in 1995-96 - the last time ending stocks fell to multi-year lows".
The stocks-to-use ratio is a much-watched measurement of the availability of a crop's supply, and therefore of the prices it is likely to command.
Indeed, the USDA noted that in 1996, corn prices "rose sharply in the spring and summer?to ration usage ahead of harvest".
Analysts at US Commodities said: "The bottom line is that we now need to slow down corn use sooner than later."
Powerline Group signalled that further cuts to the stocks estimate may be in the offing. "It can be statistically argued that the USDA is still 50m-100m bushels too low in its annual ethanol demand forecast," the Illinois-based broker said.
"These tight stocks are calling for a huge planted acres increase" this spring.
Chicago's March lot hit in intraday high of $7.00 ?/FONT> a bushel, the highest for a spot contract since July 2008, before easing a touch to end at $6.98 a bushel, up 3.6% on the day.
Global impact
The fresh American crop estimates were released in the February edition of the USDA's Wasde report on global crop estimates, a key event in the farm commodities calendar.
While making negligible changes to overall soybean and wheat forecasts, the Wasde was deemed bullish for corn prices at a global as well as US level, downgrading the estimates for production in Argentina, the world's second-ranked exporter of the grain.
"Argentina production is lowered 1.5m tonnes as continued dryness through mid-January further reduced yield prospects in the country's central growing areas," the USDA said.
The estimate for world corn stocks at the end of 2010-11 was cut by 4.5m tonnes to a seven-year low of 122.5m tonnes.
Global stock, as a proportion of use, will end the season at a 15-year low of 14.6%, the data imply.
