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Wheat market bulls underpin corn prices; can it last?

Agriculture.com Staff 08/31/2006 @ 1:45pm

As it regains $0.14 per bushel off its low, the Dec. futures corn contract on the Chicago Board of Trade is riding the coattail of the wheat market, analysts say.

Globally, the wheat crop is estimated to be the tightest it's been in a long time due to poor growing conditions, according to market analysts.

Concerns of wheat quality in Europe, production potential in Australia and South America, and a short U.S. crop, are supporting the likelihood of a tighter world wheat balance sheet.

Since spring, the wheat market has supported the corn and soybean markets, analysts told Agriculture Online on Friday.

After the USDA released a bearish corn report on August 12, the market dropped $0.30 before gaining back $0.15, and the only bulls around have been in the wheat market.

It looks like the corn market is going to need additional support from wheat bullishness.

Going into September, the market psychology, historically, focuses on lower corn prices, Jason Ward, North Star Commodity Investment Company said.

"Only two years out of the last 15 have we finished the month of September higher," Ward said. "Even the years where the crop came up short, the September rallies were between $0.05-$0.15 per bushel."

Farmers, looking at making a marketing move, could look at cheaper put options, Ward said. "I'm not big on selling right now, but some put options could give you an opportunity to make some money in the next 60-days," Ward said.

Ward added, "If someone needs to sell something they ought to look at puts, because the odds of prices going down in the next 60-days are pretty good."

Shawn McCambridge, Prudential Securities, sees the latest support in the corn market coming from wheat and fund-buying.

"Negatively, there is no fundamental support for the corn market heading into September," McCambridge said. No doubt, seasonal pressure of harvest and yield reports will take place."

However, McCambridge added, "I don't see much downside support because the fund investors are securing a long position. If they decide to liquidate those contracts, prices could go lower. But, that doesn't appear to be what they want to do right now."

With the funds staying long, McCambridge sees a $2.20 to $2.25 low for the Dec. contract.

Meanwhile, since August 12, a lot of soybeans have been sold. Fund investors are short 40,000 contracts. What this means is that people feel like the U.S. soybean average is going to be bigger than USDA's estimate of 39.6 bushels per acre, causing even lower prices.

"I think the trade is expecting the USDA to raise the soybean yield average to 41 or 42 bushels per acre in its September 12 report," Ward said.

As it regains $0.14 per bushel off its low, the Dec. futures corn contract on the Chicago Board of Trade is riding the coattail of the wheat market, analysts say.

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