October 1, 2008


CBOT Corn Review on Tuesday: USDA report sends market below US$5



A government report showing increased fourth-quarter ending stocks pushed Chicago Board of Trade corn futures lower Tuesday, traders said.


December corn ended down 25 1/2 cents to US$4.87 1/2, closing below US$5 for the first time since Jan. 23. March corn ended down 24 1/2 cents to US$5.06 1/2.


Although the market has mostly ignored fundamentals recently, traders said the U.S. Department of Agriculture's quarterly grain stocks report released Tuesday prevailed in pressuring the market.


The report pegged fourth-quarter corn stocks at 1.624 billion bushels, up from analysts' average estimate of 1.546 billion bushels and the government's previous estimate this month of 1.576 billion.


Analysts said the increase was due to a decrease in feed use, as livestock producers switched to wheat from corn.


"What it does is buy us about half-a-million acres of harvest," said Dave Marshall, an independent commodities broker and analyst in Nashville, Ill.


Prices fell despite a climb in crude oil, which usually supports corn because of production costs and its connection to energy. Equities were also higher in a rebound from Monday's steep losses.


But the trade remains concerned about the world economy and increasingly tight credit markets in the wake of Monday's failed U.S. House attempt to pass a bailout package for the financial sector. Funds continued to liquidate, with Newedge selling 5,000 contracts and JPMorgan selling 1,000 late in the session, when prices fell to session lows.


A slowing world economy is seen as bearish for commodities demand, traders add.


Prices have fallen almost a dollar in less than a week, following an intraday high of US$5.74 in the December contract Sept. 24. Downside technical momentum is pressuring the market, and Marshall said corn is approaching two-year trend line support around US$4.74 in the December contract.


Weather remains bearish, traders said, as fears of the first frost decimating a behind-schedule crop dissipate.


Analysts also noted that the portion of the crop rated good-to-excellent surprisingly climbed two percentage points according to a USDA report Monday.


CBOT oats futures ended lower. December oats were down 2 cents to US$3.16 per bushel and March oats were down 2 cents to US$3.33 1/4. A trader said trading was slow.


"When corn broke 10 cents, we broke half-a-cent," he said.


Ethanol futures ended lower. December ethanol was down US$0.042 to US$2.115 per gallon and January ethanol ended down US$0.050 to US$2.120.

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