January 13, 2007

 

CBOT Corn Review on Friday: Settles limit up on bullish USDA

 

 

Chicago Board of Trade corn futures soared Friday after the release of several U.S. Department of Agriculture reports which showed lower than expected 2006 production and ending stocks data.

 

March corn jumped 20 cents to US$3.96 1/2 per bushel and May rallied 20 cents higher to US$4.07 1/2. New life-of-contract highs were set in most months.

 

"The report was bullish beyond anybodys wildest dreams," said Joe Bedore, floor manager for FC Stonnee.

 

The Agriculture Department reported that corn production in 2006 was 10.535 billion bushels, 210 million below its previous estimate and well below the 10.706 billion anticipated by analysts.

 

Over the past several months, corn has traded higher as the Agriculture Department has reduced its estimate of corn production due to drought conditions in parts of the western U.S. Corn Belt during the summer months and late season weather problems in the eastern U.S. Midwest growing region.

 

Surging domestic demand from the rapidly expanding ethanol industry has also been a major factor, with the market firm during the fall months anticipating the need to plant more corn acres this spring.

 

The U.S. is the worlds premier corn producer and the projected demand needs have to be met not only domestically but also around the world, said Bill Nelson, associate vice-president at AG Edwards & Sons in St. Louis.

 

The Agriculture Department estimated that corn ending stocks, or the supply left over at the end of the crop year, would total 752 million bushels, well below the 935 million bushels estimated in December.

 

The government trimmed the amount of corn used as animal feed by 75 million bushels but forecast an additional 50 million bushels would be exported during the year.

 

Corn stocks as of Dec. 1 were 8.930 billion bushels. This compares to the trade estimate of 9.107 billion bushels and 2005 stocks of 9.815 billion.

 

"The corn stocks data suggests record usage," said Joe Victor, vice president/marketing at Allendale Inc. "With stocks at 8.93 billion, that suggests usage of 3.76 billion. The three-year average is 3.27 billion and the five-year average is 3.2 billion," he said.

 

Before this weeks rally however, corn futures had retreated 10% since the start of the year on profit taking and commodity index funds rebalancing their portfolios.

 

Traders noted that on the close there was an estimated 25,000 contracts to buy March corn in the pit and over 67,000 contracts to buy on e-CBOT, indicating strong demand.

 

In synthetic options trade, March corn was trading at US$4.18, suggesting a sharply higher opening on Tuesday.

 

On Monday, the CBOT is closed in observance of the Martin Luther King Jr. holiday.

 

During Fridays session, grain trading on the exchanges electronic trading system was halted on technical issues several times.

 

On day session technical charts, March corn gapped open higher with its 14-day relative strength index ending at 62.43.

 

Oat futures settled sharply higher as spillover strength from corn pushed prices higher, sources said. Oat production and ending stocks data from the USDA was unchanged from the previous report.

 

March oats rallied 15 1/2 cents to US$2.72 1/4 per bushel and May also jumped 15 1/2 cents to US$2.78 1/2.

 

Ethanol futures settled higher in thin trade. February ethanol rose 5 cents to US$2.079 per gallon and March, which didnt trade, ended up 7.2 cents to US$2.027.

 

Friday afternoon, the Commodity Futures Trading Commission is scheduled to release the commitment of traders report for the period ending Jan. 9. The USDA will release the export inspections report on Tuesday due to the holiday.