The corn market was higher on Friday after the release of the USDA October crop production report which was lower than expected. The corn market was also supported by weekly export sales which were over 2 million and twice as big as last weeks number. The carryout number for corn is still big, but the market tended to focus on the production number and a lot of traders were caught on the wrong side of the corn market. The December corn market gapped higher, almost 14 cents before settling back up 9 or so. Corn has been the short leg against beans and wheat, so traders said there was a lot of traders covering their short leg of the spread as well. As one trader said after Friday's action, the September lows in December futures are probably good, but the upside is still limited because the ending stocks is high enough. The USDA reduced the growth in fuel ethanol industry by 100 mil bushels for the 2nd month in a row and some traders think even this reduction was too conservative. Even with the USDA reduction in ethanol, almost 25% of the US corn crop will go toward ethanol production this year. Technicians point to the December contract which traded above the 50-day moving average at $3.52. Volume was light/moderate and funds bot +5,000 contracts. Corn was also supported by option trade as we had a firm buy 4,000 Dec $4.00 calls on Friday.
eCBOT market was higher overnight as the market continued to see buying that started on Friday after the release of the USDA report. With the USDA report out of the way, traders will now concentrate their attention on So. American plantings and weather, and planted acres next spring. The consensus seems to be that there is going to plenty of corn this fall and that will keep a lid on old-crop prices. Private exporters reported 242,000 tones of US corn to So. Korea over the weekend. Talking to traders this morning, it seems that many traders are will begin to focus on planted acres and demand as maybe now corn will have to battle for corn acres in 2008. There was big premium selling of straddles on Friday as many traders feel the corn market is going to trade in a range for the near future and are trying to take advantage, but as one option traded reminded me, they have been trying to do this for the last year or so and have been getting burned. Argentine corn planting is being delayed by rains, but it is well ahead of last year and 5yr average and the rain will help the corn already in the ground. The corn market should open 3-5 higher this morning and it will be interesting to see where the market goes from here. Corn will probably look for direction from the other grain markets and traders will be interested to see if we have any further spread liquidation of the long wheat/beans and short corn. Outside markets will also help support corn as we have crude and gold up this morning and a weaker dollar.
eCBOT Overnight
Contract Last Net Change High Low
ZCZ7 356^2 5^2 357^0 350^0
ZCH8 372^4 4^6 373^4 367^0
ZCK8 383^2 5^0 383^4 377^6
ZCN8 392^0 4^2 393^0 387^0
Early Opening Calls: 3-5 higher
Top News
**USDA reports private sale of 07/08 US Corn totaling 242,000 mt sold to S Korea
-- 100,000 mt of feed barley sought in Oct 23 tender by Morocco, acc. to state grain buyer
-- For the sake of progress, farmers union in France urges quick decision on proposed laws governing GMO seeds & crops.
-- The Commitment of Traders report with Options as of October 9 shows Funds: Corn Long 143,701 off 35,945
-- Chinese stats dept reports pork prices fell 0.8% in the Oct 7-12 period, the second weekly fall. Analysts & economists expect recent monthly Chinese inflation to have stabilized in the near term
-- Dalian Corn futures active May contract rose 12 Yuan/mt in overnight trade
-- eCBOT Corn Vol: 133,412; Pit Vol.: 38,992; Open Interest change: +12,717
-- Weather: Above Normal Temps. Normal to Above Precip. The Corn Belt will see a chance of scattered showers and thunderstorms almost every day this week.
-- Outside markets. Energy: crude higher, products higher ; Gold $9.00 higher & Silver: 19c higher; US $ lower vs. Euro, slightly higher vs. Yen.
Cash Markets
--CIF Corn steady up 2. Oct. +59 to +62, Nov. +63 to +65, Dec. +63 to +66, Jan. +51 to +54 J/F/M +51 to +54
TREND:
The corn market gapped away from the lower end of the old trading range. Still appears the abnormal trade was the breakout above this range earlier this month. Still feels as if we can fade a trade at 3.40 and 3.60 for the time being. Spreads have widened as far as I expect them to with firming basis levels around. Roll short hedges forward now.
Bean spreads widened today on the fear the new crop once again hast to fight corn to maintain acres. This may give the bean hedger a chance to roll hedges forward as well. These have not gone quite to the carries of corn but there is a reason. Take note.
Wheat is a dead duck if we take out this month's lows. I have not been very successful in selling weakness here and that is why we have taken on the bear spreads as a trade. Stay involved with negative option trades or bear spread trades on days when the wheat market finds a reason to rally. Seems capable of that from time to time.
If you have any questions, or if you would like to discuss specific trade recommendations on any markets, contact me directly.
Jim Riley
Linn Group
877-787-6278
Futures trading involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future trading results. Trading commentary and analysis is based on information taken from trade and statistical services, news services, and other sources which we believe to be reliable. We do NOT warrant that such information is accurate or complete, and it should NOT be relied upon as such. Our policy is to publish market research that is objective, clear, fair, and not misleading. Trading commentary and analysis reflects our good faith judgment at a specific time and is subject to change without notice. There is no assurance that the advice we give will result in profitable trades. All trading decisions will be made on a strictly unsolicited basis by the account holder.
