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Wednesday, September 30, 2009

Fear Of Early Frost Heats Corn Market

Story from the Wall Street Journal

An emerging frost threat breathed life back into the moribund Chicago Board of Trade corn futures market Tuesday, sending prices sharply higher.

Front-month December corn gained 28.75 cents, near the exchange-imposed daily 30-cent trading limit, to settle at $3.465. The market had been previously trading below $3.20 all month, and had fallen near the $3 area last week.

The catalyst was weather-forecast models indicating that parts of the U.S. corn belt could get a frost late next week. The market is especially sensitive to a frost threat because crop development has been delayed due to a late spring planting and a generally cool summer and needs more time than usual to reach full maturity.

The weather forecast was enough to give the market an initial push, analysts said. The rally accelerated as the market climbed above key technical chart points, and as speculators scrambled to buy back the previously sold, or short, positions they had accumulated over the past several weeks.

"You've got large [speculators] that are short in this market," said Chad Henderson, analyst with Prime Ag Consultants. "You got above a technical point, and away we went."

The December contract closed above its 40-day and 50-day moving averages for the first time since June 12.

Shawn McCambridge, senior grains analyst for Prudential Bache, said the rally was 25% on the weather forecast with the rest attributable to technical-chart buying and buying back of sold positions, known as short covering. Analysts said the market could see more short covering on Wednesday, but that the rally could be limited.

Although the crop looks good, the U.S. Department of Agriculture said that only 12% of it was mature as of Sunday, compared to a five-year average of 37%. It is behind last year's pace, which was considered abnormally late due to the historic Midwest flooding that delayed planting.

Soybeans, which are planted at the same time and region as corn, are not as far behind in development as the corn crop but also rallied sharply on the weather threat. CBOT November soybeans finished 51 cents higher, or up 5.6%, at $9.60 per bushel.