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CBOT corn market is hypersensitive, floor trader says

CHICAGO, Illinois -- Wearing the traditional cloth vest with buy/sell cards sticking out of the pockets, Matt Maloney, vice president of RJ O'Brien and Associates, and a CBOT corn broker and trader, said the corn market needed to close above $4.30 per bushel on Monday to gain support for the rest of the week.

Unfortunately, even the Irish-green shamrock on Maloney's vest couldn't provide enough luck on this trading day. The CBOT March corn futures contract finished 4 cents lower at $4.25.

Despite a lower market on Monday, Maloney, a 16-year CBOT trading floor veteran, sees the predominately bullish corn market acting the way it should be.

"If it wasn't for the amount of money and capital coming in, this corn market would have a whole different story to it," Maloney said. "But, with this huge influx of investment, the corn price is beyond the realm of expectations."

The amount of hedge-fund money coming out of New York is dominating trade, Maloney said. That brings incredible size orders. "The size of an order is much bigger and the money is incredible. It's a whole different ballgame," Maloney said.

For soybeans, Maloney said the corn market is the best thing happening for the bean market. "With corn doing what it's doing and wheat following, it's hard for soybeans to make a break up or down too far. In general, think soybeans are a little over-priced right now."

So, what should producers know about the ever-increasing trade activity?

"I think they should look at the option market a little more," Maloney said. "With these wild price fluctuations, they need to be protected from a call-spread position. It's a pretty dangerous game to be playing right now."

Maloney added, "The producer should be prepared for extreme volatility, especially in the corn market. So, they should protect themselves with options."

Roy Huckabay, Linn Group executive vice president, says the government subsidy on crop insurance and revenue insurance offers producers additional marketing opportunities.

If planning to plant more corn this year, a producer should merchandise some corn either by selling cash or locking in an insurance program, he said.

"There are some insurance programs that guarantee the producer between $600-$700 revenue streams per acre. For corn, with the right program, the cost to the producer is just $40 per acre," Huckabay said.

The near-term price estimates for corn remain bullish, CBOT traders and analysts said.

Huckabay sees getting above $4.20 per bushel opens the door for the corn market to go to $5.00-$5.50.

"I don't think we go there today, because the market is in a hypersensitive stage. When the funds link to the market is as big as it is, it's certainly easy to get a bearish report and then see a big sell-off," said Huckabay.

"However," he added, "I'm going to tell you that $3.50 corn has value out several years. I don't think the market is going to get below $3.50 for awhile."

If the energy markets extend their gains, ethanol will continue to rally, Huckabay said. Ethanol has added $0.25 per gallon in the last 30 days, and as long as ethanol goes up, corn prices go with it.

"If we have a supply disruption in one of these unstable governments, and energy prices go into a major uptrend, corn goes right along with it. So, it's not just weather, but energy as well as weather this year driving the corn market," Huckabay said.

Despite what you hear at the coffee shop, producers are pricing corn crops for 2006-2008, traders and analysts said.

"When prices hit $4.10-$4.20 in March corn last week, producers took advantage of that," Maloney said. A good chunk of 2006-2007 corn was sold."

Huckabay agreed farmers are willing to sell at these prices.

"I know of a farmer that typically has 180 bushel yields, and when the futures market got to $3.75 and cash was $3.50, he sold some," Huckabay added, "He did it again at $4.00 and sold again at $4.25. He said there was too much money on the table not to sell. He sold a big share of next year's corn crop well before putting it in the ground."

Overall, after spending a day at the Chicago Board of Trade, it seems clear more producers are willing to sell new-crop corn, and traders are already factoring in crop weather into the corn market.

"Wednesday is the end of the month, so Thursday we could get new capital from the index funds coming in," Maloney said. "But, I think we are switching over to a weather market already."

Maloney added, "In two weeks, the first corn in the U.S. should be planted, and we have a lot of people concerned about how wet it is. Keep in mind, the market is so hypersensitive, any crop setback at all will have a market impact."

CHICAGO, Illinois -- Wearing the traditional cloth vest with buy/sell cards sticking out of the pockets, Matt Maloney, vice president of RJ O'Brien and Associates, and a CBOT corn broker and trader, said the corn market needed to close above $4.30 per bushel on Monday to gain support for the rest of the week.

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