January 13, 2009

Chicago Board of Trade corn futures are expected to open lower Tuesday on follow-through selling and pressure from a stronger dollar, analysts said.

 

Corn is called 6 to 8 cents lower. In overnight trade, March corn was down 7 1/2 cents to US$3.73 1/4 per bushel, May corn was down 7 1/4 cents to US$3.84, and July corn was down 7 1/4 cents to US$3.94 1/4.

 

Monday's USDA reports sent the market limit down, and follow-through selling pushed the market lower overnight, in line with the synthetic trade on Monday's close. The report included a surprising increase in 2008 production and a jump in 2008-09 ending stocks that was much larger than expected.

 

Additional pressure will come Tuesday from strength in the dollar, which makes U.S. exports less attractive. But some analysts think the market will find some stability.

 

"I don't see the heavy selling," said Shawn McCambridge, senior grains analyst with Prudential Bache. "The hedge pressure is not going to be there, because the farmer sold into the rally at the first of the year. And I don't think he's going to be willing to chase prices lower."

 

He added that there is still a perception that index fund re-balancing could bring fresh buying into the market, although some other analysts said the re-balancing could prompt more selling.

 

Soybeans, after a steep drop Monday, gained overnight and could limit corn losses, a trader said. Soybeans have support from South American weather, which also spills over into the corn market, traders said.

 

DTN Meteorlogix calls for more dry weather in Argentina this week, while parts of Brazil saw rains Monday and will see more Tuesday and Wednesday.

 

In export news, the Korea Feed Association has bought 55,000 metric tonnes of U.S. corn from trading house Cargill, an association official said Tuesday. The corn has been sold at US$187/tonne on a cost and freight basis.

 

Also, China's corn exports in December fell 9% from the same month a year earlier to 40,000 metric tonnes, according to preliminary data issued Tuesday by the General Administration of Customs.

 

Monday's reports have reversed ideas that the market was going to need to buy more acres heading into the growing season.

 

"Planted acreage may be the next big question for the market and the USDA will address it in the March 31 prospective plantings report," Country Hedging analyst Christopher Steinhoff said in a morning commentary. "Continued dry weather in Argentina may lower production with the need for more bean acres in the US possibly pulling acres away from corn."

 

Monday's price action could well be the beginning of the seasonal "February Break" phenomenon on the grains, a technical analyst said, adding that near-term chart damage was inflicted Monday as a five-week-old uptrend on the daily bar chart was negated.

 

The next downside price objective is to push and close March prices below solid technical support at US$3.50 a bushel, the technical analyst said. The next upside price objective is to push and close prices above major psychological resistance at US$4.00.