August 12, 2006

 

CBOT Corn Review on Friday: Down hard after USDA, big fund, tech sales

 

 

Chicago Board of Trade corn futures settled sharply lower Friday after the larger-than-anticipated corn production estimate from the U.S. Department of Agriculture in the August crop production report.

 

December corn, which represents the fall harvest, fell 14 cents to US$2.41 3/4 a bushel, its lowest level since early this year. Nearby September also slid 14 cents to US$2.24 3/4.

 

The USDA estimated the U.S. corn crop at 10.976 billion bushels well above its July estimate of 10.740 million bushels and the average analyst estimate of 10.795 billion.

 

It estimated the yield per acre at 152.2 bushels, above last month's 149.0 projection.

 

The USDA noted that if realized, the yield would be the second largest on record and the third-largest harvest. It cited better-than-expected yields in corn-growing areas east of the Mississippi River, while areas west of there saw yields at or below last year due to dry weather which caused conditions to decline.

 

"It was a triple whammy," said Vic Lespinasse of AG Edwards & Sons. "The weather is bearish (for prices), the USDA reports were bearish and commodity fund selling was heavy. Everyone remembers last year when the corn crop got bigger despite the drought. Right now the weather is favorable (for crop development) across the U.S. Midwest and ideas are that this crop could get bigger if the weather remains favorable."

 

When the government in the past has started with a record corn yield it will typically go up, said Richard Feltes, senior vice president and director of commodity research at Man Financial.

 

Earlier this summer, corn prices were supported by hot and dry weather in the western corn belt including parts of Iowa, Minnesota and Nebraska, three key growing states. Recently cooler and wetter weather has reduced some of the concerns about the impact of the weather on the crop's yield in those states.

 

Looking ahead, if weather remains favorable, the corn could continue benefit as it enhances its yield, filling out the kernels, Lespinasse said.

 

On open auction technical day charts, December gapped open to the downside and fell to its lowest levels since early this year. December's 14-day relative strength index ended at 33.69.

 

Buyers Friday included JP Morgan, which bought 2,000 December, Fimat bought 1,200 December, Rand Financial bought 600 March and Iowa Grain bought 500 March.

 

JP Morgan sold 4,000 December, O'Connor sold 2,500 December, UBS sold 2,500 December, Fimat sold 1,500 December and ADM Investor Services sold 1,000 December.

 

Overall commodity fund selling was estimated at 30,000 contracts.

 

In options trading JP Morgan sold 2,500 September US$2.50 puts.

 

Oat futures settled lower as spillover weakness from the steep losses in corn and wheat weighed on the market, sources said.

 

Light technical selling with December falling below its 100-day moving average added to the weakness, they added. Good scale down commercial buying limited some of the declines, a commission house analyst said.

 

September oats fell 3 1/4 cents to US$1.77 1/2 per bushel while December fell 2 1/2 cents to US$1.85 1/2.

 

Ethanol futures settled mixed in light trading. August ethanol slipped 2 1/2 cents to US$2.45 1/2 cents per gallon while September gained 2 cents to US$2.55.

 

Friday afternoon, the Commodity Futures Trading Commission is scheduled to release the commitment of traders report for the period ending Aug. 8.

 

On Monday, the USDA is schedule to release the weekly export inspections report at 10:00 a.m. CDT, and the weekly crop progress report at 3:00 p.m. CDT.