November 9, 2006

 

CBOT Corn Review on Wednesday: Speculative buying leads corn higher before USDA

 

 

Chicago Board of Trade corn futures rose Wednesday on widespread buying ahead of a key government production report.

 

December corn futures gained 6 3/4 cents to US$3.57 3/4 and March also rose 6 3/4 cents to US$3.73 1/2. E-CBOT day-session volume in December was 97,451 contracts.

 

New life-of-contract highs were set in most months.

 

Traders and analysts are expecting the Agriculture Department Thursday will reduce the size of the U.S. crop, putting pressure on supplies as surging demand from domestic ethanol producers has tightened the supply and demand outlook.

 

In October, the USDA trimmed the size of the U.S. corn crop to 10.905 billion bushels, down over 200 million bushels from its September estimate.

 

"Thursday's USDA report has had more pre-report publicity than I've seen in years for something that on the surface is moderately bullish," said John Kleist, of Top Third Ag Marketing in Chicago.

 

Concerns that the agency could reduce the crop further on Thursday has led to heavy speculative buying over the past several sessions, with nearby corn futures reaching new-life-of contract highs almost daily. The rally in corn is contra-seasonal, as normally grain prices are down during the fall due to harvest bringing fresh supplies to market.

 

Since Oct. 2, nearby corn has rallied 90 cents.

 

Trade participants are concerned that next year's corn production won't be sufficient to meet the needs for ethanol, livestock use and exports. As such, even far-deferred prices, which represent the 2007 crop, are rallying to encourage U.S. farmers to plant additional acres.

 

This year USDA said 78.6 million acres of corn were planted, and many in the corn industry said areas devoted to the grain could be as much as 85 million acres next year, with acres coming from area normally planted to soybeans.

 

"It's been difficult to put any value on the upside because what dollar amount buys sufficient acres is yet to be determined," Kleist said.

 

CBOT soybean and wheat prices also rallied Thursday as those commodities prices have to move higher in the fight for next year's land. January soybeans gained 10 3/4 cents to US$6.78 and December wheat rose 7 cents to US$5.04.

 

On daily open auction technical charts, December gapped open higher and remained above the gap as heavy speculative buying pushed prices higher, sources said.

 

Buyers on Wednesday included JP Morgan, which bought 1,600 July; Citigroup, which bought 700 July; Fimat, which bought 400 July; and ADM Investor Services, which bought 300 July.

 

UBS sold 1,000 March, Citigroup sold 300 March and Rand sold 300 July.

 

Overall commodity fund buying was estimated at 6,000 contracts.

 

In options trading Advantage Futures bought 5,000 December 2007 US$4.80 calls and 5,000 December 2007 US$3.00 puts.

 

Oat futures finished higher and made new life-of-contract highs across the board as continued speculative commission house buying and spillover support from strong corn futures prices lifted oats, a floor trader said.

 

December oats gained 6 cents higher to US$2.71 1/4 cents per bushel and March settled up 7 cents at US$2.82.

 

Ethanol futures settled unchanged in thin trade. The December contract settled unchanged at US$2.12 cents per gallon. The January contract did not trade and also settled unchanged at US$2.07.

 

On Thursday, the USDA is scheduled to release the November crop production and supply-demand reports at 7:30 a.m. CST (1330 GMT). Weekly export sales from the USDA are also due out at that time.