November 7, 2008


CBOT Corn Review on Thursday: Down with commodity, equity sell-off



U.S. corn futures fell 3% Thursday on widespread commodity weakness led by nearly 7% losses in crude oil, a rallying dollar and steep losses on Wall Street, analysts said.


December corn fell 12 1/4 cents to US$3.78 a bushel on the Chicago Board of Trade, and March lost 12 1/2 cents to settle at US$3.95 1/2.


The weakness in the outside markets was formidable, encouraging speculative fund sales throughout the CBOT grain and soy complex and nearly all commodity markets except the dollar. Funds sold an estimated 5,000 corn contracts on the day.


Losses of 3.5%-4% on Wall Street on a weak retail sales report and amid news the Bank of England slashed interest rates by 1.5% to try and stem the economic recession there put plenty of nervousness and demand concerns back into commodities.


"This is all weighing on the corn and fund managers are selling the market off because of the other markets' weakness," said Brian Hoops, analyst and president of Midwest Market Solutions.


Export demand for corn has ebbed, and conditions are extremely tough for ethanol producers now that crude oil has fallen to around US$60 a barrel, creating a bearish climate in corn, he said.


Ethanol giant VeraSun Corp., one of the three largest producers in the nation, filed for bankruptcy protection last Friday, illustrating the severity of the market pressure. Record-high corn prices in June crimped ethanol margins, and the company locked in contracts when prices were high. Corn prices began to plummet in July, leaving VeraSun with huge losses from which it could not recover.


Corn export sales for the week ended Oct. 30 were a net 471,300 metric tonnes, at the low end of trade estimates looking for 400,000 to 700,000 tonnes. Sales were up 14% from the previous week but were down 40% from the previous four-week average, the U.S. Agriculture Department said. This is just the latest evidence that the global markets will not likely require or cannot afford as much corn as previously thought, a trader said.


While the fundamentals continue to relinquish ground to the outside influences, traders are watching a storm system in the northwestern corn belt that has brought rain to the western and central Midwest and an abrupt end to the streak of favorable harvest conditions. Scattered showers and lower temperatures are moving through Iowa and Illinois, where farmers are trying to get their corn harvested.


The rain is expected to move east and much cooler readings behind it will not be as conducive for drying the crop.


Just light showers are expected for the eastern Midwest, favoring fieldwork, though temperatures will fall dramatically by Sunday, forecasters said.


Ethanol futures fell in sympathy with corn. December ethanol lost 3.5 cents to US$1.733 per gallon, and March fell 4 cents to US$1.7400.


December oats were unchanged at US$2.38 per bushel, and March oats edged 3/4 cent lower to US$2.54 1/4.


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