June 12, 2008

 

CBOT Corn Review on Wednesday: Climbs 30-cent limit on floods, crude

 

 

Flooded fields and growing concerns about crop production pushed Chicago Board of Trade corn futures to new highs on Wednesday, as the market set an all-time high and closed 30 cents higher, the exchange-imposed daily limit.

 

July corn hit US$7 for the first time Wednesday and ended 30 cents higher to US$7.03 1/4 per bushel, an all-time high. September corn was up 30 cents to US$7.16 3/4 and December corn was up 30 cents to US$7.32 3/4.

 

The surge continued a rally from Tuesday, when the U.S. Department of Agriculture's supply and demand report confirmed fears that the crop would suffer reduced yields. Planted acreage is also likely to drop, analysts say, due to excessive rains that have continued to pound much of the U.S. corn belt.

 

"It's kind of a perfect-storm-type scenario, where you have both strong fundamentals and outside support of the market," said Shawn McCambridge, senior grain analyst with Prudential-Bache in Chicago.

 

Investors have flocked to corn in recent days, analysts say, on crude oil's strength and as the media focuses on flood damage, which has included Iowa, Wisconsin and southern Indiana. Some are predicting the December contract could hit US$8 due to inevitable crop reductions.

 

"No doubt about it, between now and harvest we'll come up short on corn," said Frank Cholly Sr., senior market strategist for Lind-Waldock, who said US$8 was a "conservative" forecast for December corn.

 

Some analysts say despite the dire outlook, a decent crop is not completely out of the question.

 

"If the weather does straighten out, there are a lot of fields that have excellent growing potential," McCambridge said.

 

The spring rains have drawn comparisons to the historic Midwest flooding of 1993, and meteorologists have pointed out that this spring was actually wetter than that year. But some analysts say it's too soon to draw the analogy, and McCambridge said more advanced hybrid seed technology gives the current crop an advantage compared to 1993.

 

The market becomes increasingly risky as prices spike, said Dale Durchholz, an analyst with AgriVisor. Prices have climbed US$1.30 since an intraday low of US$5.73 on May 29.

 

Adding to the uncertainty, Durchholz said, is that it's difficult to gauge the success of demand rationing until a couple months after the fact.

 

Thursday's trading limit will be expanded to 45 cents.

 

CBOT oats rose by its 20-cent daily limit on spillover support from corn, a trader said. "With so much rain in corn, it's including everything involved in feed grain," a trader said. July oats closed up 20 cents to US$4.13 per bushel, September oats were up 20 cents to US$4.25 and December oats were up 20 cents to US$4.40.

 

Ethanol futures were higher. July ethanol was up US$0.122 to US$2.62 per gallon and December ethanol was up US$0.09 to US$2.63.