July 3, 2008

 

CBOT Corn Review on Wednesday: Rallies early on spread, late on weather

 

 

Chicago Board of Trade corn futures rallied Wednesday, closing near the exchange-imposed daily trading limit on technical support, spread unwinding and concerns about a potential heat wave next week.

 

July corn ended up 29 1/4 cents to US$7.48 3/4 per bushel, September ended up 28 3/4 cents to US$7.61, and December ended up 28 1/2 cents to US$7.80 1/2. The contracts had climbed 30 cents higher, the exchange-imposed limit, briefly before the settlement.

 

Funds were heavy buyers for the second day in a row. They bought 13,000 contracts Wednesday, including 5,000 contracts late in the day, when prices gained more than 10 cents in a furious rally.

 

After dropping earlier this week on bearish government estimates for planted acreage and quarterly stocks, the market found strong support around Tuesday's intraday lows, analysts said. December's low Tuesday was US$7.36 1/2.

 

Since then, "you've seen strong commercial buying on any weakness in the market," said Brian Hoops, president of Midwest Market Solutions.

 

Fueling the late rally was growing concern about weather forecasts. Traders said several forecasts are predicting a heat wave next week. That could be dangerous for a crop that has shallow root systems, unable to withstand prolonged hot, dry weather.

 

"Whether justified or not, people became more and more concerned about this weather forecast for the second half of next week," said Vic Lespinasse, analyst for Grainanalyst.com.

 

T-storm Weather meteorlogist Mike Tannura noted the possibility of hot U.S. corn belt weather later next week, but says high soil moisture levels could spark thunderstorms, limiting the heat.

 

"The bottom line is that the threat for heat needs to be monitored, but it is far from imminent," he writes.

 

Prices climbed earlier Wednesday on unwinding of the corn/soybean spread, analysts and traders said. As corn dropped Monday and Tuesday following the U.S. Department of Agriculture's planted acreage and quarterly stocks report, soybeans were setting new records, which caused the spread to widen.

 

"It moved too much, too fast," a trader said.

 

Lespinasse said the spread unwinding was a key feature early in the day, while weather become dominant late.

 

Analysts see strong support for corn around US$7.40 for the December contract, though one warned that a close below that price could appear to be a "chart reversal."

 

Traders will likely be cautious Thursday, heading into a three-day holiday weekend, but Hoops said there could be more buying if weather forecasts show with more certainty that the U.S. corn belt will see a heat wave next week. The Chicago Board of Trade will be closed Friday for the Fourth of July holiday.

 

CBOT oats ended sharply higher, climbing several cents late on spillover support from corn and heavy fund buying, a trader said. July oats closed up 16 cents to US$4.54 per bushel, September oats closed up 12 cents to US$4.62 and December oats closed up 12 1/2 cents to US$4.80.

 

Ethanol futures were higher. July ethanol was up US$0.030 to US$2.850 per gallon and December ethanol was up US$0.014 to US$2.859.