April 3, 2008

 

CBOT Corn Review on Wednesday: Establishes new records; funds buy

 

 

Speculative fund buying took U.S. corn futures to all-time highs Wednesday, with the lead contract testing the US$6 area, on theories that adverse weather could delay plantings, and on traders' efforts to secure acres from soybeans, analysts said.

 

Nearby May corn on the Chicago Board of Trade rose 11 3/4 cents a bushel to settle at US$5.95 3/4, near its intraday and all-time high of US$5.99 1/4. Both July and new-crop December contracts hit records and easily settled above the US$6-per-bushel mark.

 

Large commodity funds bought more than 7,000 corn contracts to lead the buying interest.

 

The rally is a continuation of the market's bullishness after the U.S. Agriculture Department on Monday estimated farmers would plant 8% fewer acres to corn this year versus last because of high input costs such as fertilizer and fuel and attractive prices for alternate crops such as soybeans or wheat. At the same time, the USDA projected farmers would plant 18% more acres to soybeans this year.

 

As a result, corn prices have raced to record highs in two out of the last three trading days.

 

"You had some technical strength and also some concerns about the weather with the extended forecast taking us into the middle of the month and staying on the cool and wet side," says Shawn McCambridge, senior grains analyst at Prudential-Bache in Chicago.

 

"And of course we saw a continuation of the acreage concerns," he says.

 

New rounds of showers and thunderstorms are forecast Wednesday and Thursday for southern Midwest areas and into the northern Delta, and those rains are expected to spread into much of the corn belt by Friday, according to private forecaster DTN Meteorlogix. This comes at a time when farmers need fields to dry out and soil temperatures to rise so they can prepare fields for planting.

 

The National Weather Service's six- to 10-day forecast calls for nearly above-normal precipitation and normal to below-normal temperatures.

 

Some analysts say if corn isn't planted in the heart of the Midwest by May 5, yield loss will likely result.

 

The gains in corn prices may also be traders' attempts to purchase acres away from soybeans, analysts say, when corn can ill-afford to give up acres amid strengthening demand and tightening stocks

 

Independent agricultural analyst John Kleist says the higher prices are an effort to siphon off demand in order to avoid the possibility of stocks declining further in case of a weather problem this growing season.

 

The USDA on Monday pegged U.S. corn stocks as of March 1 at a lower-than-expected 6.86 billion bushels, suggesting ethanol and feed demand had been stronger than anticipated, which caused concern that stocks could drop to worrisome levels by the fall.

 

A general lack of selling interest surrounded the market with its new bullish fundamentals and supported the gains, McCambridge said.

 

Going forward, traders will closely eye new-crop contracts to determine if it will remain profitable for producers to switch acres to corn from soybeans. So far, most analysts said corn holds a slight edge of profitability, but that could erode if soybeans continue to gain strength and corn buying interest fades.

 

Meanwhile, CBOT oat futures ended higher amid spillover support from neighboring markets, a floor trader said. Corn, soybeans and wheat finished the day higher. May oats rose 9 cents to US$3.97 per bushel.

 

Ethanol futures settled higher. April ethanol rose 4.1 cents to US$2.523 per gallon, and May ethanol climbed 6.3 cents to US$2.48.