January 12, 2008

 

CBOT Corn Review on Friday: Ends limit up; soars after USDA reports

 

 

Chicago Board of Trade corn futures settled limit up Friday as lower-than-expected crop production, quarterly stocks and ending stocks data pushed prices sharply higher.

 

March corn settled 20 cents higher at 4.95 per bushel and December also rose 20 cents to US$5.13 1/4. March set another new life-of-contract and 12-year high. In synthetic options trading, March corn was trading between 10 and 11 cents higher at the close.

 

"The corn market had a little bit of a cushion in ending stocks going into the report, but the U.S. Department of Agriculture estimating ending stocks below 1.5 billion bushels eliminated that perception, and pushed the market sharply higher," said Jason Britt, an analyst at Central States Commodities in Kansas City.

 

The USDA estimated corn ending stocks at 1.438 billion bushels, well below the 1.698 average analyst estimate as well as the 1.797 billion estimated in December.

 

"It's a bullish situation; we have produced a record corn crop and cannot rebuild corn stocks. Demand is outstripping supply," said Britt.

 

The government pegged final 2007 crop production at 13.074 billion bushels, a new all-time record. However, this was below the previous report of 13.168 billion and the average analyst estimate of 13.109 billion bushels. The bushel-per-acre yield was estimated at 151.1 bushels per acre, almost 2 bushels per acre lower than the 153.0 forecast in November by the USDA.

 

First-quarter corn stocks were pegged at 10.269 million bushels, below the 10.550 billion forecast by analysts but above the 8.933 billion bushels in last year's first quarter.

 

The market will be watching for signs that farmers will plant more corn than what was expected 24 hours ago, a commission house analyst said. Given the recent demand, it appears that prices will need to go higher in an attempt to ration demand.

 

This week has seen a flurry of export sales announcements with the USDA announcing a sale of 296,000 metric tonnes of U.S. corn to South Korea and a sale of 120,000 tonnes to unknown destinations for delivery in the 2007-08 marketing year Friday.

 

Price direction on Monday will depend on the amount of unfilled orders that remain to be filled in electronic trading, an e-cbot trader said. At the close, there were approximately 139,000 unfilled buy orders on the electronic trading system in the first five contract months.

 

In addition, there are concerns about the weather in Argentina, a major corn-producing country. It has been dry there and the crop is entering its key pollination stage, a trader said.

 

Speculative commodity fund buying in open-auction trading was 7,000 contracts.

 

On daily technical charts, electronically traded March corn remained above its major moving averages with the 14-day relative strength index in March at 85.11.

 

In options trading, JP Morgan bought 5,000 March US$4.80 calls. Oat futures settled sharply higher, making new life-of-contract highs as spillover from corn and fund buying pushed prices higher, a commission house analyst said.

 

March oats jumped 9 cents to US$3.36 per bushel after trading as high as US$3.39.

 

Ethanol futures settled moderately higher. February ethanol gained 9 cents to US$2.21 per gallon while March rose 7 cents to US$2.145.