November 30, 2009

 

CBOT corn delivery expectations vary; low quality feared

 

 

Expectations for deliveries on first-notice day for the December corn contract vary widely, with quality issues serving as a wild card, according to analysts.

 

First-notice day for the contracts is Monday, which means it is the first day on which notices of intention to deliver actual commodities against futures market positions can be received.

 

Estimates range from as high as 3,000 deliveries to as low as zero.

 

"When you look at the delivery position, it just makes sense economically," said Don Roose, president of US Commodities in West Des Moines, Iowa, who estimated deliveries around 2,000.

 

Weak basis, or the difference between cash and futures prices, point to relatively strong deliveries, some analysts said.

 

But as of Wednesday afternoon, there were only three contracts registered for delivery, according to a report from the CME Group Registrar's Office.

 

Quality issues could be a factor in the number of deliveries. The US crop, which has suffered through a very wet season, is in some cases plagued with vomitoxin.

 

Country Hedging said in a Friday commentary that deliveries are expected to be "fairly light," between zero and 150 contracts, but that they "could be higher if a larger amount of vomitoxin or high moisture corn is found than previously thought."

 

CME Group last week announced it was going to implement vomitoxin specifications on the CBOT corn contract, leaving unclear whether the restrictions would apply to December deliveries or subsequent contract months. But this week the CME announced that they would not implement any specifications, which some analysts have taken as a sign that the vomitoxin problem is not as bad as some feared.

 

Without vomitoxin specifications, producers could choose to make delivery their "dumping ground," said John Kleist, broker-analyst with Allendale.

 

But a trader said that the quality problems, and the potential that prices could climb due to a shortage of high-quality corn, should prompt holders of grain to hold on to their supplies for now.

 

Another analyst said that a good chunk of the crop remains unharvested, and that holders of grain won't want to relinquish high-quality corn if they are worried that what remains is of lesser quality.

 

About a third of the corn crop remained unharvested as of Sunday, according to the US Department of Agriculture.