U.S. soybean and corn futures ended the year at more than two-year highs, closing a strong 2010 for agricultural commodities.
Soybeans futures set a 28-month high of $13.9375 a bushel at the Chicago Board of Trade, while corn futures settled at a 29-month high of $6.29 a bushel. Wheat futures settled just short of similar highs.
Friday's close capped a year of hefty gains for grains and soybeans fueled by poor global weather and concerns over tight world supplies. Soybeans, corn and wheat finished up 34%, 52%, and 47%, respectively, for the year.
Many analysts expect the strength in futures to continue in 2011. Global demand remains strong, while concern grows over crop production being able to keep pace.
"If there was ever a year where outstanding U.S. and world grain and [soybean] yields are needed, 2011 will be it," said Joel Karlin, analyst for California-based livestock feed company Western Milling.
Traders on Friday continued to focus on Argentina, a key exporter of soybeans and corn. Farmers in the South American country are struggling with heat and dryness at a key period of development for their crops, which will be harvested in the spring. Part, if not all, of Argentina's growing area could face highs above 90 degrees Fahrenheit daily for the next two weeks, according to Freese-Notis Weather, a private, U.S.-based weather firm.
"It's a full-blown, five-alarm weather market in Argentina," said Jim Gerlach, president of A/C Trading, an Indiana-based brokerage firm.
Argentina's soybean crop has succumbed to withering heat and dryness in past years; the country produced just 32 million tons of soybeans in 2008-09. The U.S. projects Argentina's 2010-11 soybean crop at 52 million tons. Even before drought hit South America, U.S. soybean futures were climbing as Chinese demand surged.
Corn traders bid up futures in the early autumn as the U.S. harvest disappointed. Their focus soon also shifted to Argentina, the world's second-biggest corn exporter, as its crop increasingly faced the threat of dry, hot weather.
Extreme weather also rallied wheat futures in 2010. Drought devastated Russia's crop, while heavy rains trimmed the wheat harvests in Canada and eastern Australia. Analysts are worried about persistent dryness in Russia, the U.S. Plains and China in the new year. Many don't expect futures prices to pull back significantly until buyers are comfortable the 2011 harvests will be adequate.
"Historically, weather has always come back to normal, more or less, and we've had some big crops," said Sid Love, analyst for Kropf & Love Consulting, a Kansas-based brokerage firm. "If that doesn't happen, all bets are off."
