May 6, 2008

 

CBOT Corn Review on Monday: Down on technical weakness, ethanol concerns

 

 

Chicago Board of Trade corn futures ended sharply lower Monday, dropping on expectations of a slightly improved planting progress report, concern about "ethanol-bashing" and technical-chart weakness, traders and analysts said.

 

May corn fell 20 cents to US$5.82 per bushel, July dropped 19 1/2 cents to US$5.94 and December dropped 16 3/4 cents to US$6.12 3/4. Funds sold 6,000 contracts.

 

Traders and analysts said they were struggling to explain the drop, given there was support from a weaker dollar, higher crude oil and weather forecasts that call for more rain this week, which would delay plantings. They said one factor for corn's weakness was likely the growing political backlash against ethanol, which analysts noted grew stronger last week.

 

"I think some people are starting to reduce demand because of all the ethanol-bashing," said Joel Karlin, a market analyst at Western Milling.

 

Traders said the backlash might be causing some to be cautious.

 

"It might be enough to send some people to the sidelines," one trader said.

 

Although December corn hit all-time highs twice last week, Karlin said corn has not reacted as strongly to bullish news in the last couple weeks. He noted that bearish technical chart momentum Monday pushed prices several cents lower for July corn soon after it hit last week's low of US$5.97. July corn found support near its 50-day moving average.

 

But weather is still dominating the corn market, and one trader said he thought continued rainy weather forecasts and planting delays haven't been fully factored into the market yet. Strong planting progress early in the season is critical for corn as this is the time corn can reach optimal yields. Beyond mid-May, yields can drop off.

 

Given the way corn's price dropped during the past couple days, "one of these days it's going to go up 30 cents," he said.

 

Floor traders said there was speculation at the end of the day that the U.S. Agriculture Department's crop progress report would show plantings at 35%. That would be at the high end of estimates that were as low as 20% late last week. The average sown as of this week is about 65 percent.

 

Shawn McCambridge, a senior analyst for Prudential-Bache, said he expects market participants' focus on the weather to soon resume pushing prices higher.

 

"We're overbought," McCambridge said. "We've had a pretty good run. I think we set back just a little bit."

 

CBOT oats dipped slightly amid a continued tug of war between fund buying and commercial selling, a trader said. Oats showed significant gains overnight and held firm most of the day despite the drop in other commodities, the trader said. May oats lost 2 cents to US$3.99 per bushel and July oats lost 2 cents to US$4.10.

 

Ethanol futures rose. June ethanol jumped 3.5 cents to US$2.509 per gallon, and July ethanol ended up 3 cents at US$2.47.