September 16, 2009

 

CBOT Corn Review on Tuesday: Soars on frost, technical buys, short-covering

 

 

An emerging frost threat sparked a rally in Chicago Board of Trade corn futures Tuesday, prompting funds to cover short positions and sending the market sharply higher.

 

December corn ended up 28 3/4 cents to US$3.46 1/2 per bushel, and March corn ended up 28 1/2 cents to US$3.59 1/2.

 

The market opened modestly higher on the frost threat, which isn't expected to materialize until at least the middle of next week.

 

But the rally gained momentum as the market passed key moving averages.

 

"You've got large specs that are short in this market, you got above a technical point, and away we went," said Chad Henderson, analyst for Prime Ag Consultants.

 

Traders and analysts said the bulk of the day's move was due to funds' short-covering. Funds bought an estimated 22,000 contracts during the session.

 

"Twenty-five percent of it was fundamental, 75% of it was technical and short-covering," said Shawn McCambridge, senior grains analyst for Prudential Bache.

 

The December contract closed above its 40-day and 50-day moving averages for the first time since June 12.

 

Some warned that the frost threat is still far off and that long-range forecasts are unreliable. Although forecasters differed on the specifics, they said the frost could hit parts of the northern corn belt, including the Dakotas, Wisconsin, Michigan and northern Iowa, in the latter half of next week.

 

That is a concern because the crop remains well behind schedule and needs more time than usual to mature.

 

This year's crop could be a record if the weather cooperates, analysts said. Some analysts say that a frost could put a dent in the crop, but not cause any major supply issues, since it could be large anyway.

 

The market has been trading bearish fundamentals for weeks, analysts said. As a result, some traders got "caught short expecting it to be doom and gloom all the time" Henderson said.

 

Henderson said follow-through could send the market above US$3.50 Wednesday, but that it will be hard-pressed to top the August high of US$3.76. The market had been trading between US$3 and US$3.20 all month until Tuesday.

 

CBOT oats futures ended higher, following corn. December oats ended up 11 3/4 cents to US$2.17 1/4 per bushel and March oats ended up 11 3/4 cents to US$2.30 1/4.

 

Ethanol futures were higher. October ethanol ended up US$0.058 to US$1.668 per gallon and November ethanol ended up US$0.064 to US$1.653.