November 3, 2006

 

CBOT Corn Review on Thursday: Sharply higher on speculative buys, crop est

 

 

Chicago Board of Trade corn futures rose sharply Thursday as concerns about the size of the U.S. corn crop and speculative buying pushed prices to 10-year highs.

 

December corn gained 11 1/4 cents to US$3.44 3/4 per bushel and traded to its highest level in more than 10 years on monthly continuous charts and March rallied 12 1/4 cents to US$3.59 1/4. e-CBOT day session volume in December was 90,443 contracts.

 

New life-of-contract highs were set through the Sept. 2008 contract.

 

Surging demand for corn from the domestic ethanol industry and exporters has led the market higher for most of the fall.

 

Although the U.S. is projected to harvest the third-largest crop in history, concerns about the impact wet weather had in parts of the U.S. Midwest this fall has market participants concerned that the Agriculture Department could reduce its November crop production estimate set for release next week, after trimming its estimate in October to 10.905 billion bushels. Two private firms crop estimates predicting lower supplies than what the USDA projected in October added fuel to the rally, sources said.

 

Wednesday afternoon, trading firm FC Stonnee estimated the U.S. corn crop at 10.808 billion bushels. Before the opening, Informa Economics predicted the U.S. corn crop at 10.729 billion bushels, sources said

 

"The market has rallied over US$1 since September and corn has attracted the outside investment community but at the same time corn has underlying fundamental support," said Shawn McCambridge, senior grain analyst at Prudential Financial in Chicago. That increased participation confirms the validity of the run-up and reduces selling interest, he added.

 

In its October supply and demand outlook, the USDA projected corn used for ethanol at 2.15 billion bushels in 2007, up over 34% from the 1.6 billion used this year.

 

Given the USDA's past history, "there's a strong bias that a lower corn production estimate in October is usually followed by a lower estimate in November," said Bill Nelson, assistant vice president of AG Edwards & Sons in St. Louis.

 

Ending stocks of corn are projected to be below 1 billion bushels at the end of the season, almost 1 billion bushels lower than last year, and any further reductions in the size of the corn crop, suggest even lower ending stocks in the next report, he noted.

 

"The extraordinary growth in the ethanol industry dictates further expansion of corn acres in 2007 and the market is sending a signal to farmers about the urgency to expand acres next year," Nelson said.

 

Partly as a result of the strong gains in corn, feeder cattle futures at the CME ended limit down in some months as the higher price of corn a primary feed component of cattle, surged.

 

The market had little reaction to the weekly export sales report. The USDA reported weekly corn exports were 1.027 million metric tonnes for the week ended Oct. 26, within the range expected by analysts.

 

On open auction daily technical charts, December gapped open higher and rallied to its highest level since September of 1996.

 

Buyers Thursday included UBS, which bought 1,200 July and 500 December, RJ O'Brien, which bought 1,000 December and 800 July, Rand Financial, which bought 1,300 July and 500 March, FC Stonnee, which bought 1,000 March and 1,000 December and JP Morgan, which bought 1,200 July.

 

JP Morgan sold 1,000 December, Man Financial sold 50 July and Term Commodities sold 400 March.

 

Overall commodity fund buying was estimated at 12,000 contracts.

 

In spread trading, JP Morgan bought 7,000 December 2007 and sold December 2006

 

Oat futures settled sharply higher, making new life-of-contract highs in most months as fund and commercial along with spillover buying from corn pushed prices higher, floor sources said.

 

December oats rose 11 3/4 cents to US$2.55 1/2 cents per bushel and March settled 11 1/4 cents to US$2.64.

 

Ethanol futures settled mixed in thin trading activity. November settled up 1 cent at 2.035 cents per gallon and December slipped 2 cents to US$2.005.