June 4, 2008

 

CBOT Corn Review on Tuesday: Drops on crude, weather forecasts, CFTC

 

 

A drop in crude oil, warm-weather forecasts and government policy changes pushed Chicago Board of Trade corn futures lower Tuesday, analysts said.

 

July corn was down 7 3/4 cents to US$6.08 per bushel, September corn was down 7 3/4 cents to US$6.21 1/4 and December corn was down 7 cents to US$6.36 1/4.

 

The Commodity Futures Trading Commission's policy changes, announced at 1 p.m. EDT, were seen as targeting the role of index funds in the commodities markets, but traders and analysts disagreed on what impact the CFTC would have.

 

"They really didn't say anything except that they would study the situation and at some point issue further recommendations based on the study," said Kent Beadle, an analyst with Country Hedging. "To be honest, agricultural commodities are more in tune with what happened with crude oil and what's going on with the weather."

 

But a trader said an afternoon break in prices was a direct result of the CFTC announcement. Index funds are wary of the CFTC's plans and will feel more pressure to leave the market, he said.

 

"If I'm a trader, I don't want to wait for them to tell me to 'do this,' or 'do that,'" the trader said.

 

The CFTC said it will develop a proposal to require more detailed information from index traders and swaps dealers and "whether classification of these types of traders can be improved." The commission will also withdraw proposed rules that would have increased speculative position limits on certain contracts.

 

Prices were down just slightly when the CFTC's announcement was made but broke later in the afternoon. Contracts dropped to more than 13 cents lower before recovering some of their losses near the end of trading.

 

Analysts said warmer weather forecast for the U.S. corn belt could boost crop development and put pressure on the market.

 

Monday's U.S. Department of Agriculture crop progress report was seen as mixed. It showed planting at 95%, compared with an average of 98%, and the portion of crop in good or excellent condition was at 63%, down from 78% last year.

 

"It was bearish relative to expectations, yet it is well behind last year's conditions," Beadle said of the USDA report.

 

Beadle said he was "very, very disappointed" with what he saw as weak CFTC comments on agricultural lending. He said that although index funds clearly have a target on their backs, the biggest problem for the futures markets is the lack of access to capital for producers and grain elevators that need to hedge to manage their risks.

 

Arlan Suderman, a market analyst with Farm Futures, said he thought the CFTC announcement would have limited significance. "I think the good news is they didn't do any damage," he said. He added that the CFTC appeared to be endorsing more transparency, which would be good for the markets.

 

CBOT oats were virtually flat. July oats were flat at US$3.780 per bushel, September oats were down 3/4 cent to US$3.890 and December oats were down 1/2 cent to US$4.05 1/2. An analyst said late planting of the crop showed up in Monday's USDA crop-progress report, which showed 60% of the crop rated good or excellent, down 1% from last week and compared with a 10-year average of 69%.

 

Ethanol futures ended lower. June ethanol was down US$0.058 to US$2.35 per gallon, and July ethanol was down US$0.102 to US$2.30.