Friday, July 24, 2009

CBOT Corn Review: Rallies On USDA's Plan To Resurvey Acreage

By Ian Berry
July 23, 2009

CHICAGO (Dow Jones)--The government's announcement that it would resurvey corn acreage in several U.S. states launched a rally in Chicago Board of Trade corn Thursday, giving life to a market that to many appeared to be sinking toward $3 a bushel.

September corn ended up 19 cents to $3.27 a bushel and December corn ended up 19 1/2 cents to $3.38 3/4.

After recent weakness amid bearish weather and technical pressure, the market was "suddenly served with an input we weren't trading," a floor trader said. Prices opened about 10 cents higher and continued to climb throughout the day, ending at session highs. Funds bought an estimated 10,000 contracts.

The catalyst was the U.S. Department of Agriculture's announcement that it would be conducting more surveys and revising its planted acreage estimate in the August crop production report. With the USDA already having issued a large, bearish planted-acreage estimate in June, most analysts said the only direction for the corn acreage to go is down.

"We, and many in the market, are and remain skeptical that farmers planted 87 million acres of corn as reported in June," Morgan Stanley said in a report.

Traders said the news could have put a seasonal low in the market.

"I think they changed the rules of the game, and you have to adjust," a trader said. He sees the market moving toward the $3.50-$3.75 range in the December contract.

Strong weekly export sales added to the supportive tone and demonstrated that demand picked up on the recent break in prices, traders said. A generally bullish tone in commodities was also supportive, traders added.

Some analysts said an increase in acreage could not be ruled out. Gavin Maguire, a director of EHedger, said he expects an acreage cut, but said it could be offset by larger yields. Benign weather for weeks, with forecasts calling for more cool weather, has weighed on prices and fueled expectations of a bumper crop.

"Maybe we will lose a million acres, but we could see yields jump by 5, 6, 7 bushels per acre," Maguire said.

Farmer selling could provide a headwind for any rally, a trader said. Farmers are holding large amounts of grain after refusing to sell as prices dropped from about $4.50 to just above $3 in about a month.

Farmer selling also likely helped the September-December spread to widen, a trader said. The trader added that funds are primarily in the December contract, so short covering gave an added boost to that contract.

CBOT oats futures ended higher in a modest correction after a sharp drop the past couple of days. A trader said that corn provided support but that the rally was disappointing after two days of fund liquidation. September oats ended up 3 1/2 cents to $2.02 1/2 a bushel and December oats ended up 3 1/2 cents to $2.14 1/2.

Ethanol futures were higher. August ethanol ended up $0.065 to $1.597 a gallon and September ethanol ended up $0.064 to $1.555.

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