April 1, 2006

 

CBOT Corn Review on Friday: Rally on fund buys, acreage projections

 

 

Chicago Board of Trade corn futures surged to seven-month highs Friday as funds, or large speculators, bought aggressively amid smaller-than-anticipated prospective plantings figures from the U.S. Department of Agriculture.

 

CBOT May corn settled 8 1/4 cents higher at US$2.36, July corn ended 8 1/2 cents higher at US$2.47 1/4 and December corn finished 8 cents higher at US$2.68.

 

The market's strength was attributed to speculative interest, with a much lower than anticipated projected seedings figure providing fundamental justification for the session's gains, analysts said.

 

The fund buying overwhelmed the market, with traders estimating fund buying in excess of 50,000 contracts on the day. The market has taken the report at face value, with prices breaking out of a recent trading range on technical charts.

 

The plantings figure was a plus for new crop months, but it was surprising to see old crop contract gains outpacing new crop, evidence that the funds continue to make the market move counter to its fundamentals, said Shawn McCambridge, senior grains analyst with Prudential Financial in Chicago.

 

The day's action looks more like an end of the month fund function amid ample nearby supplies, with farmer selling and a fair amount of hedge pressure expected to surface over the weekend, McCambridge adds.

 

Traders say the corn market now must either rally to levels to force farmers into rethinking planting intentions or hope that perfect conditions will emerge throughout the growing season to produce strong yields to sustain aggressive demand profiles.

 

USDA projected 2005 U.S. corn plantings at 78.019 million acres, below the average trade estimate of 80.576 million. This figure is well below the 2005 season, when 81.759 million acres were seeded.

 

USDA said the corn plantings if realized would be the lowest U.S. corn acreage since 2001, citing farmer intentions to plant less intensive crops due to fertilizer and fuel costs.

 

USDA pegged March 1 corn stocks at a hefty 6.987 billion bushels, which matched the average analyst estimate. This is also well above the same time last year, when stocks totaled 6.756 billion.

 

The DTN Meteorlogix weather forecast said soil moisture supplies are improving notably as a result of storms during the past two weeks in the U.S. Midwest. More rain is on the way for the region during the last half of this coming weekend. The western Midwest outlook has up to one and one-half inches of additional rainfall, and the eastern Midwest will see rainfall of one-quarter to three-quarters of an inch develop late Sunday into Monday. Field work delays are so far localized; the general situation is favorable for soil moisture ahead of the spring and summer crop season.

 

In pit trades, ADM Investor Services bought 1,200 May, FCStonnee bought 1,200 December, ABN Amro, and Prudential Financial each bought 1,000 December, Calyon Financial, Fimat, Tenco and UBS Securities each bought 2,000 May, Refco bought 2,500 December, Man Financial bought 6,000 May. Fund buying was estimated near 50,000 contracts.

 

On the sell side, ABN Amro sold 10,000 May, JP Morgan sold 2,000 May and 1,000 July, Merrill Lynch and Calyon Financial each sold 1,000 May, and Fimat sold May and July futures.

 

Ethanol futures moved higher Friday. The May ethanol contract settled 1 1/2 cent higher at US$2.55 and June futures ended 2 cents higher at US$2.57 per gallon.

 

Oat futures ended higher, with spreading and outright buying July futures featured. CBOT May oat futures settled 1 1/4 cent higher at US$1.73 1/2 and July oats ended 6 3/4 cents higher at US$1.81 3/4 per bushel.