September 19, 2008


CBOT Corn Review on Thursday: Sharp drop amid liquidation, weak demand



Demand concerns and favorable crop weather helped push Chicago Board of Trade corn futures sharply lower Thursday, as the volatile market relinquished Wednesday's gains.


December corn ended down 26 3/4 cents to US$5.27 1/4 and March corn ended down 26 3/4 cents to US$5.43 1/4.


Concerns about the world economy and weakening global commodity demand has prompted liquidation in corn and other commodities, traders said. Given the meltdown in the financial markets, fundamentals in corn are not very important in the moment.


"They're not even in the back seat," says Joel Karlin, analyst for Western Milling. "They're off in the trunk."


Another analyst says signs of weak demand are weighing on the market. Export sales reported Thursday were at the low end of expectations, and ethanol demand appears likely to weaken, analysts said.


The downgrade in ethanol producer VeraSun's bond rating by Moody's Investors Service, announced Wednesday, shows that ethanol has "become yet another worry in the arena of the financials," the analyst said. Struggles in the ethanol industry reverberate in corn, he said, by damping demand.


The December contract briefly traded 30-cents lower, its daily trading limit, hitting its lowest price since Aug. 12.


Weather is adding pressure to the market, traders said. Karlin said that it appears the U.S. corn belt won't see it's first frost until October, good news for a crop that analysts have said is particularly vulnerable to a first frost this year because it was planted late. The market may be removing a weather premium from the market, he said.


"Fears that the crop could get zapped are starting to dissipate," Karlin said.


Views of the crop are mixed. Some traders say last week's USDA crop production report, which cut projected yield, is providing underlying support for the market, while others say Thursday's action showed the crop is in better shape than the USDA's assessment.


CBOT oats futures ended lower in sympathy with corn, a trader said. December corn ended down 8 cents to US$3.25 per bushel and March corn ended down 8 cents to US$3.43.


December ethanol was down US$0.033 to US$2.125 per gallon and January ethanol was down US$0.030 to US$2.146.


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