Hot corn market getting hotter

CHICAGO: The bellwether new-crop Chicago Board of Trade (CBOT) December corn futures contract has been extremely volatile and no letup from that pattern is expected this week as the US bread basket boils while the crop tries to reproduce.

"It's hot and dry just as the corn is pollinating and that is not good.

There are no room for mistakes this year, a two bushel-per-acre decline gets us back down to pipeline supply," said Mary Ann Kwiatkowski, an analyst for Amber Trading.

The December contract, currently holding nearly half of the total corn open interest, hit a contract high $7.22-3/4 in early June, following the release of a bullish US government corn stocks report. It then plunged 20 percent to a 3-1/2 month low of $5.75-1/2 in less than a month after the USDA reversed course and released a bearish corn stocks report.

Now, a turn to hot weather in the US Midwest and continued brisk demand from the export, feeding and ethanol sectors are pulling prices higher and there is the potential for big price swings."The cash corn market is on fire.Basis is 60 cents to $1.10 over for Southeast feeders and ethanol plants in the East and I also think some of it is due to Canadian imports," Kwiatkowski said.

High heat forecast for this week in the US grain belt at a time when the corn crop begins to pollinate and set yields could roil the market.

Trader caution the market could plunge if forecasts for cooler and wetter weather surface.

"We could easily be up-limit or down-limit Sunday night, depending on what the forecasts are," a CBOT floor corn trader said.

Globex trading of corn futures will begin at 6:30 p.m. CDT (2430 GMT) on Sunday.

If the heat materializes, the crop could be stressed and yield potential hurt at a time when a bumper harvest is needed to build supplies and ease high global food prices and operating costs for companies using corn as feedstock.

"We're expecting daytime temperatures in the low to mid-90s (Fahrenheit) and night-time temperatures in the low to mid-70s F," said Shawn McCambridge, an analyst for Jeffries Bache.

"The night-time temperatures should drop to the mid- to low- 60s F for an adequate cool-down," he said.

Last year's US corn crop also was trimmed below forecasts because the high night-time temperatures did not give the crop time to cool off. The relentless heat sapped the crop's energy and cut into production totals.

"The crop is pollinating later than normal and anything that affects the efficiency of pollination can cut into yields," McCambridge said.

Copyright Reuters, 2011