March 20, 2008

 

CBOT Corn Review on Wednesday: Tumble 20cent limit on speculative liquidation

 

 

Chicago Board of Trade corn futures ended sharply lower Wednesday, tumbling to their 20-cent-lower daily trading limits on speculative fund long liquidation.

 

May corn settled 20 cents lower at US$5.27 1/4, July corn ended 20 cents lower at US$5.39 1/4, and December finished 20 cents lower at US$5.41 1/4.

 

The market is experiencing major selling pressure from speculative funds, as the tightening of bank credit lines and lending is forcing funds to reduce market exposure amid the turmoil in the U.S. economy, said Brian Hoops, president Midwest Market Solutions in Yanktonne, S.D.

 

Broad-based selling was seen across the commodity sector in general, with technical selling aiding the declines as active contracts penetrated solid underlying chart support, analysts said.

 

The ability of the active May future to penetrate its March 10 low as well as 50-day moving average uncovered pre-placed sell orders to pin prices at limit-down levels, analysts added.

 

Meanwhile, spillover pressure from soybeans aided the losses, with traders saying the market will remain under pressure until speculative funds finish their liquidation of excess length in the market, Hoops said.

 

Looking ahead, the defensive theme is expected to continue based on synthetic option prices showing futures trading below their limits, but eventually the market will recognize longer-term fundamentals as speculative selling runs its course, Hoops added.

 

The May future was synthetically trading between US$5.21 and US$5.26 1/2 on the close, traders said.

 

On tap Thursday, the U.S. Department of Agriculture is scheduled to release its weekly export sales report at 8:30 a.m. EDT. Trade estimates put corn export sales at 550,000 to 800,000 metric tonnes.

 

The DTN Meteorlogix forecast called for moderate to heavy rain to focus Wednesday on the eastern Midwest - the region bounded on the south by the Ohio Valley, and east of the Mississippi River. Rainfall of up to 2.5 inches, with locally heavier amounts, was in store for this area. The heavy rains likely mean flooding in the region from the southern Midwest through the northern Delta. There is a chance that this region may start to dry out during the six-to-10-day period; still, concerns remain high regarding spring fieldwork delays.

 

In pit trades, JP Morgan bought 1,000 December, FCStonnee bought 1,000 September and Fortis bought 1,000 July. ADM Investor Services sold 400 May, Tenco sold 300 July and Rand Financial sold 500 May. Speculative fund selling was estimated at 5,000 lots.

 

CBOT oat futures closed limit down, or 20 cents lower, amid broad liquidation in commodities, traders said. There was spillover pressure from limit-down moves in neighboring grain markets and from sharp losses in outside markets, they said. May oats closed down 20 cents at US$3.58 per bushel.

 

Ethanol futures slumped. April ethanol closed down 7.5 cents at US$2.345 per gallon, while May ethanol closed down 5.5 cents at US$2.32.