May 18, 2006

 

CBOT Corn Outlook on Thursday: 1 cent higher on export sales, overnight

 

 

Corn futures are expected to open 1 cent a bushel higher Thursday on follow-through from the recent climb to fresh 9 1/2-month highs on the nearby contract and on news of strong export sales, sources said.

 

In overnight e-cbot trade, July corn rose 1/2 cent to US$2.63 1/2 and September corn added 1 cent to US$2.75.

 

Export sales for the week to May 11 totaled 1.539 million metric tonnes for the 2005-06 crop, up 39% from the previous week and 44% higher than the prior four-week average. Major increases were noted to Japan, Egypt, South Korea and Mexico. The sales included 40,000 tonnes of optional origin sales for delivery to Egypt, the U.S. Department of Agriculture said.

 

Sales of 51,100 tonnes also were reported for the 2006-07 crop.

 

Traders had expected sales in a range of 800,000-1.1 million tonnes, so the data is considered supportive for the market, a source said.

 

Dale Gustafson, analyst at Citigroup Global Markets in Chicago, said he looks for the market to open 1 cent higher on the export sales data. "I was going to call it lower before I saw the sales," he said.

 

Corn shipments totaled 1.086 million tonnes, down 2% from the previous week but 2% above the prior four-week average.

 

July corn on Wednesday closed at fresh 9 1/2-month highs and September traded to a new contract high, supported by speculative and fund buying and spillover from a surging wheat market to new contract highs. Bullish price outlooks from brokerage giant Goldman Sachs, in which it pegs fair value for nearby CBOT corn at US$3.31 a bushel, supported the rally.

 

Meanwhile, Midwest weather will remain cool for four to five days, but temperatures will warm up next week and benefit crop emergence.

 

Mostly dry conditions are seen in the west Thursday, with light showers in the eastern corn belt. Mostly dry conditions with a few light showers are expected Friday through Sunday, with dry conditions on Monday, DTN Meteorlogix said.

 

Meanwhile, corn futures on China's Dalian Commodity Exchange closed mostly higher on the government's decision to expand the use of ethanol-blended gasoline into some of its largest cities, such as Shanghai and Beijing. The benchmark January contract rose RMB6 to RMB1,505 a tonne.

 

China is expected to become a net importer of corn, a major ingredient for ethanol production, likely as soon as 2007.

 

In the U.S., talk of a policy that would eliminate the 54-cent-per-gallon tax on ethanol imports is "not visionary for the market," Fabrizio Zichichi, vice president, clean oil for Noble Americas, said Tuesday in Chicago.

 

The benefits of the Renewable Energy Fuel Standard in the current U.S. energy bill: clean city programs, tax incentives and the phase-out of methyl tertiary-butyl ether, or MTBE, all benefit ethanol expansion, he said at Platt's 2nd annual Ethanol Finance and Investment conference.

 

Technically, July corn's price action Wednesday may have seen an upside "breakout" from a bullish pennant pattern on the daily bar chart. Bulls have fresh near-term momentum. However, a close below last week's low of US$2.55 3/4 would provide bears with near-term downside momentum, an analyst said.

 

First resistance for July corn is seen at US$2.63 1/2 and then at US$2.65. Support is seen at US$2.60 and US$2.57 1/2.

 

July corn's Relative Strength Index climbed to 76 after Wednesday's close, indicating continued overbought conditions.