June 2, 2008

 

CBOT Corn Outlook on Monday: Slightly lower on CFTC, overnight losses

 

 

Chicago Board of Trade corn futures are expected to open slightly lower Monday, analysts said, as the market cautiously weighs news that the government will announce policy changes this week to address rising food prices.

 

In overnight trading, July corn was down 1 cent to US$5.98 1/4 per bushel, September was down 1/2 cent to US$6.12 and December corn was down 3/4 cents to US$6.25 3/4.

 

Traders said the Commodity Futures Trading Commission's plan to announce policy changes that could limit the role of index funds in the markets could be bearish. But they added the effect would be tough to determine until more details emerge. The New York Times reported the pending announcement Saturday and said the role of index funds would be a focus of the CFTC changes.

 

The market reacted cautiously to the news in overnight trading and will continue to do so until the changes become clear, said Don Roose, president of U.S. Commodities in Des Moines, Iowa. He said the CFTC would be unlikely to announce changes that would severely hinder the market.

 

"You can put teeth in here the U.S., but realistically all it does is cut back trade here in advance of other countries," Roose said.

 

A trader said one possible CFTC move, a moratorium on new index fund money in the market, would inhibit new money flows and push prices lower. But he considered more drastic moves that would cause widespread fund liquidation to be unlikely.

 

The market will continue to closely track energy prices, as it has in recent weeks, traders said.

 

Traders are also awaiting what they expect will be a bullish crop progress report from the U.S. Department of Agriculture Monday afternoon. The percentage of crop rated good-to-excellent is expected to be below 65%, while Roose said that figure was 78% last year. This is the first week that corn crop conditions will be reported.

 

Below-average conditions would cause greater concern that the crop is being hindered by late planting, making it "increasingly tough to achieve trend-line yields," an analyst said.

 

A technical analyst said market action last Thursday, in which prices pushed below the boundary of a well-defined sideways trading range, appears to have been a classic "false breakout" as prices are now right back in the middle of a two-month-old trading range at higher levels.

 

The next upside price objective is to push July corn prices above solid technical resistance at US$6.11 1/4. The next downside price objective is to push and close prices below solid support at last week's low of US$5.72 3/4.

 

First resistance for July corn is seen at Friday's high of US$6.03 1/4 and then at US$6.07. First support is seen at US$5.95 and then at US$5.90.