October 12, 2007

 

CBOT Corn Outlook on Friday: Called 10 cents higher after bullish USDA report

 

 

Chicago Board of Trade corn futures are expected to start day session trading 10 cents higher after the U.S. Department of Agriculture estimated a lower than expected corn production and yields, analysts said.

 

In overnight electronic trading before the report, December corn fell 2 1/2 cents to US$3.41 1/4 per bushel and March dropped 2 3/4 cents to US$3.58. E-CBOT volume in December was 5,913 contracts.

 

The USDA pegged the 2007-08 U.S. corn crop at 13.318 billion bushels, slightly above the 13.308 billion estimated last month but well below the average analyst estimate of 13.459 billion.

 

The corn yield was estimated at 154.7 bushels per acre, well below the average analyst estimate of 157.7, as well as the USDA's 155.8 bushel estimate in September.

 

"It's bullish for corn as the production number went in the opposite number of expectations," said Vic Lespinasse, an analyst at Illinois Grain. "Contrary to the saying big crops got bigger, this one got smaller," Lespinasse said.

 

The USDA noted that yields are higher than last year across the Great Plains, central Corn Belt and Delta, with yields down in the Ohio and Tennessee Valleys, Northeast ad mid-Atlantic states.

 

Despite the smaller than expected production, 2007-08 corn ending stocks were higher than expected. The USDA estimated ending stocks at 1.997 billion bushels, above the average analyst estimate of 1.959 billion and well above the 1.675 billion projected last month by the USDA.

 

In the supply and demand report, the government reduced the amount of corn used by ethanol producers by 100 million bushels, cut the amount fed to animals by 150 million and trimmed food, seed and industrial use by 100 million, prompting caution from another analyst.

 

"With the reductions in the usage side of the balance sheet, we still pushed U.S. ending stocks up close to 2 billion bushels," said Shawn McCambridge, senior grain analyst at Prudential Financial. "In addition, you increased world ending stocks 5 million tonnes. I look at this report and say I don't see it as being bullish mainly because your (U.S.) ending stocks number is destined to be over 2 billion bushels."

 

The USDA did increase its estimate of U.S. corn exports by 100 million bushels partially offsetting the declines in usage.

 

Weekly corn export sales were released Friday and were 2.320 million metric tonnes, well above the 700,000-to 1.1 million tonnes expected by analysts. Japan, South Korea and Mexico were the major buyers on the week.

 

On daily open auction technical charts, December corn closed lower Thursday and near mid-range, unable to rally despite limit-up gains in wheat and higher soybean prices, a technical analyst said. Traders are waiting for the USDA production and supply and demand report for further market direction. The next downside price objective for market bears is to close prices below solid support at this week's low of US$3.35. The bulls' next upside price objective is to close prices above solid resistance at US$3.50.

 

First resistance for December corn is seen at US$3.48 1/2 this week's high and then at US$3.50. First support is seen at US$3.41 1/2 and then at US$3.39 1/2.

 

In other corn news, China exported 380,000 metric tonnes of corn in September, the country's General Administration of Customs reported. Exports in the Jan.-Sept. period totaled 4.53 million tonnes, up 98% on year, the customs department reported.

 

Corn futures on China's Dalian Commodities Exchange settled lower with the May contract down RMB15 at RMB1,639/tonne.