January 13, 2010

 

CBOT Corn Outlook on Wednesday: Sharply lower again on big crop estimate

 

 

Chicago Board of Trade corn futures are expected to extend their slide on Wednesday's open, as Tuesday's bearish crop projection from the U.S. Department of Agriculture continues to weigh.

 

Corn is called 15 to 17 cents lower. In overnight trade, March corn was down 17 1/4 cents to US$3.75 1/4 per bushel and May corn was down 16 1/2 cents to US$3.86.

 

The market followed Tuesday's limit-down plunge with further losses overnight. Traders and analysts said the market had only limited losses for much of the overnight trade before breaking through support levels late.

 

The catalyst that sent longs running for cover was the government's bearish supply and demand estimates, particularly a record crop of 13.151 billion bushels, with a yield of 165.2 bushels per acre. The vast majority of traders had been expecting the USDA to lower its crop projection due to poor weather late in the growing season and a delayed harvest.

 

Looking at the added corn supply, along with big South American crops and large world wheat supplies, "you just say 'Holy Cow,' " a floor trader said.

 

"This commodity sector is not without supply all of a sudden," he said.

 

Some bulls said the USDA's estimates were not as bearish as some believe. They note that the government said it will resurvey the crop, and possibly issue a revised estimate in March, due to the late harvest, which in some cases has yet to be completed. The bulls say this shows the USDA does not have complete confidence in its estimate.

 

Shawn Hackett, president of Hackett Financial Advisors, added in a report that traders are overlooking that the USDA also increased projected demand Tuesday, particularly for feed.

 

"If you believe the yields from the USDA in yesterday's report, this still puts the stocks to usage ratio at the second tightest this decade in the U.S.," Hackett said. "When one looks at the global stocks to usage ratio base upon yesterday's report, the stocks to usage ratio is the lowest since 1974. This is hardly bearish and in fact is an extremely bullish supply/demand situation for 2010."

 

Index fund rebalancing, which traders say has been scheduled to take place over five days ending Thursday, was halted Tuesday because the funds' by-laws prevent them from rebalancing while the market is limit up or limit down, analysts said. That rebalancing should resume Wednesday, analysts said.

 

Tuesday's plunge caused technical chart damage, traders said, with the market backing well off recent resistance at US$4.25.

 

The next upside price objective is to push and close March prices above strong technical resistance at US$4.15 a bushel, a technical analyst said. The next downside price objective for the bears is to push and close prices below solid technical support at the December low of US$3.79 a bushel.

 

First resistance for March corn is seen at US$4.00 and then at US$4.05, the technical analyst said. First support is seen at US$3.91 and then at US$3.85.

 

In export news, analysts said that Taiwan bought 79,000 metric tonnes of U.S. corn overnight.