November 5, 2007

Seasonal CBOT corn price tempered by outside markets

Strong outside-market action may keep corn futures well supported through the end of the year at the Chicago Board of Trade (CBOT) despite the usual influx of available cash supplies from the US harvest that typically puts pressure on prices.

Crude oil futures prices have rallied sharply in recent months, setting a new all-time high of US$96.24 per barrel Thursday (November 1) and climbing more than US$16 per barrel since Oct. 1 on a strong world economy, supply and geo-political concerns.

As a result, corn futures have ignored their current fundamentals, rallying in sympathy on inflationary buying and on its position as a biofuels crop. Coinciding with the rally in crude oil, CBOT December corn futures have rallied more than 40 cents from October 8 to its high of US$3.80 3/4 set Friday.

"The wild card for any seasonal price decline is crude oil futures," said Dan Basse, president of AgResource in Chicago.

Weakness in the US dollar and strength in gold also have "clearly been influencing corn prices," said Jack Scoville, vice president at Price Futures Group in Chicago. The dollar has set new all-time lows against the euro, and gold has rallied to a 27-year high this week on inflationary concerns, Scoville said.

If gold and silver continue to trade higher and the dollar remains under pressure, any seasonal price decline will probably not occur. But if those commodities cannot extend their gains, it's very possible that corn will move lower over the next few weeks on seasonal pressure, Scoville said.

"There is an excellent chance for a seasonal decline," said Scoville. The market is near the end of the calendar year and most importers have already priced in their near-term demand. Exporters have bought what they need and as a result demand should decline until the new year.

The US Department of Agriculture projects 2007 US corn production at 13.318 billion bushels, with ending stocks, the amount left over at the end of the marketing year expected to be 1.997 billion bushels - both well above the previous year.

There is a lot of corn piled up on the ground, deliveries against the December contract are looming and index funds are beginning to roll out of their nearby positions - all bearish factors, said Basse. However, "if crude oil trades as high as $100 to $110 per barrel, it will throw any typical seasonal decline out of kilter," said Basse.