August 15, 2008

 

CBOT Corn Review on Thursday: Rallies on technical support, weather

 

 

Technical support and concerns about potential drying in the U.S. corn belt sent Chicago Board of Trade corn futures higher Thursday, traders and analysts said.

 

September corn ended up 18 3/4 cents to US$5.57 3/4 per bushel, December corn ended up 18 3/4 cents to US$5.77 1/4 and March corn ended up 18 3/4 cents to US$5.96 1/2.

 

Much of the surge came during the last hour of trading. A catalyst for the rally, traders said, was a midday forecast calling for dry weather in the U.S. corn belt during the next two weeks.

 

"Even though it's out there in the long-term forecast, it's still enough to keep the shorts very nervous," said Shawn McCambridge, senior grains analyst with Prudential-Bache in Chicago.

 

A weather system previously expected to dump rain on the corn belt early next week will instead miss the corn belt, said John Dee, a meteorologist with Global Weather Monitoring. There is still a possibility of rain at the end of next week and into the weekend, but he said that it is too far away to count on that.

 

The crop is more susceptible to a dry spell this year because it was planted in wet conditions and as a result has a shallow root system, which cannot tap deep into the soil to find moisture, analysts said. Dee said Nebraska, Minnesota and parts of Ohio would be particularly affected by a dry spell. Iowa and Illinois would probably be able to withstand it because of existing soil mositure, he said.

 

Having dropped almost US$3 in less than two months, the trade remains sensitive to any threats to the crop, McCambridge said, and has put some weather premium back in the market.

 

"The markets usually come back to trading fundamentals eventually," McCambridge said. "And the fundamental aspect of this market is that the crop is not in the bin."

 

A trader said the rally prompted more buying once the market rebounded to new highs on the day. The market had been choppy for much of the day and was several cents lower at one point.

 

Despite the gains, traders and analysts say it's not clear if funds, which had liquidated in recent weeks, will return to boost the market. Open interest dropped 12,000 contracts during Wednesday's 30-cent climb, which analysts said indicated there was lots of short covering and that funds may continue to liquidate.

 

The market climbed despite a drop in crude oil, Traders say the market has likely established a near-term bottom this week, and could begin to settle into a sideways trading range.

 

CBOT oats futures ended higher. September oats were up 9 3/4 cents to US$3.81 1/2 per bushel, December oats ended up 10 cents to US$4.01 and March oats ended up 9 1/2 cents to US$4.19 1/2.

 

Ethanol futures were higher. September ethanol ended up US$0.014 to US$2.249 per gallon and December ethanol ended up US$0.010 to US$2.215.