November 11, 2005

 

CBOT Corn Review on Thursday: Modest losses on second-largest crop

 

 

Chicago Board of Trade corn futures fell modestly Thursday on a government report that revealed the second-largest crop in history and showed ending stocks rising to burdensome levels, sources said.

 

Weekly export sales at the low end of trade estimates and spillover selling from wheat and soybeans kept pressure on corn for much of the day. Prices edged to fresh contract lows during the session, as funds were net sellers of corn.

 

December settled 1 1/2 cents lower at US$1.93 3/4, March was down 1 1/2 cents at US$2.08 and May ended 2 cents lower at US$2.15 3/4 a bushel.

 

"We've got a lot of corn, and we just continue to grind a little bit lower," said Joel Karlin, research analyst at Integrated Grain and Milling in Fresno, Calif.

 

"We have the largest stocks in 17 or 18 years and the largest stocks-to-use ratio in about 14 years, so we're swimming in corn," he added.

 

The U.S. Department of Agriculture in its November production report estimated the U.S. corn crop at 11.032 billion bushels, up from 10.857 billion in October and higher than many trade estimates expecting around 10.965 billion bushels. This was based on an average yield of 148.4 bushels an acre, up from 146.1 bushels in the October report.

 

The USDA nudged up ethanol use by 25 million bushels to 1.575 billion bushels and it raised food, seed and industrial use by 75 million bushels to 2.960 billion.

 

But the USDA left exports unchanged at 2 billion bushels. Coupled with the production increase, 2005-06 ending stocks rose to 2.319 billion bushels, from 2.22 billion in October.

 

Globally, the USDA raised corn ending stocks to 114.2 million tonnes, from 111.9 million. It reduced Argentina's corn crop estimate to 17.3 million metric tonnes, from 18 million in October, and Brazil's crop estimate was also reduced to 42.5 million tonnes, from 44 million last month.

 

China's corn exports were unchanged at 3 million tonnes and its production was also unchanged at 126 million tonnes.

 

The USDA also issued weekly export sales, which pegged corn at 884,100 tonnes, down 27% from last week and down 8% from the previous four-week average.

 

The onslaught of data convinced traders there is a burdensome supply in the marketplace and a heavier U.S. export pace will be needed to whittle away at stocks.

 

"There's a little trepidation that we're going to need to see a little bit more vigorous corn exports to maintain the USDA export figure, which seems a little high at 2 billion," Karlin said.

 

Basis levels for corn are firming, however, and the spreads are tightening, suggesting the market may be near its lows. "I think the cash markets have actually seen their lows and farmers have taken their fairly large LDPs (loan deficiency payments) and putting the stuff away," he said.

 

Continued Chinese corn sales, reduced feedgrain demand because of bird flu and competition from other feedgrains continue to hold back U.S. exports, sources said.

 

December corn set a new contract low of US$1.93 1/2, March made a new low at US$2.07 3/4 and May's new low is US$2.15 1/2.

 

Fund pressure weighed on the market, as they sold an estimated 2,000 contracts.

 

Calyon Financial sold 1,500 December, ABN Amro sold 600 December, CIS sold 500 March and Fimat sold 400 March and 300 December.

 

Citigroup Global Markets bought 2,000 December, Tenco bought 1,000 March, Stern bought 500 December, Fimat bought 400 May and Cargill and FCStone each bought 200 December.

 

Spread trading was active, with Calyon spreading 3,000 March/December at 14 1/4-14 1/2 cents, Fimat spreading 1,000 March/December and ADM trading 1,000 December/March.

 

Ethanol for December delivery was unchanged at US$1.99 1/2 and January was up 1 cent at US$1.93 a gallon.

 

December oats gained 1 1/4 cents to US$1.67 a bushel.