June 8, 2009

 

CBOT Corn Outlook on Monday: Lower on dollar, follow-through selling

 

 

Chicago Board of Trade corn futures are expected to open lower Monday amid a stronger dollar and consolidation ahead of Wednesday's supply and demand report, analysts said.

 

Corn is called 3 cents to 5 cents lower. In overnight trade, July corn was down 5 3/4 cents to US$4.38 1/4 per bushel and December corn was down 5 3/4 cents to US$4.61 3/4.

 

The market is set up for a modest correction following recent gains and pressure from outside markets, including the dollar, analysts said. Prices dipped Friday, and follow-through selling helped push the market lower overnight, a trader said.

 

Prices have risen "too far too fast this Spring," according to Arlan Suderman, analyst for Farm Futures.

 

"As such, prices may need to consolidate lower at some point to help end users get over a serious case of sticker shock and allow for the ethanol and livestock industries to heal along with the economy," Suderman said.

 

Suderman added the rising dollar gives the market "the excuse it needs" to correct lower.

 

There are mixed views of the weather's influence on the market. Country Hedging said in a morning commentary that "unseasonably cool weather conditions across the upper Midwest and forecasts for cool, wet weather across the corn belt next week may provide some weather support." The chilly weather hinders development of a crop that is already planted late.

 

But analysts and traders also noted that the western corn belt, which has been turning dry, got some needed rain over the weekend, and DTN Meteorlogix calls for more rain in the western corn belt this week. This is considered bearish.

 

In international news,the Chinese government is likely to sell 15 million metric tonnes of corn from its reserves in the market soon, a person familiar with the matter said Monday.

 

The government may sell the corn to processors, mainly in the northeast, at RMB1,500/tonne, and subsidize them by RMB100/tonne, the person, who declined to be named, told Dow Jones Newswires.

 

This year, the government bought 35 million tonnes of corn, less than one-fourth of last year's 165.5 million tonnes of harvest, at RMB1,500/tonne, and has said it will sell them at higher than the purchase prices.

 

Technically, the market remains on an uptrend despite Friday's losses, analysts said. The bulls' next upside price objective is to push and close prices above solid technical resistance at US$4.85 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 last week's low of US$4.21 3/4 a bushel.

 

First resistance for July corn is seen at last week's high of US$4.50 and then at US$4.55, the technical analyst said. First support is seen at Friday's low of US$4.40 and then at US$4.35.

 

Speculative funds added 32,252 contracts to their CBOT corn long positions and added 10,161 to their short positions, putting them net long 126,628 contracts, the Commodity Futures Trading Commission said Friday.

 

The supplemental commitment of traders report also showed that commercial funds cut 7,283 contracts from their long positions and added 36,690 to their short positions, putting them net short 312,074 contracts. Index funds added 14,356 contracts to their long positions and added 260 contracts to their short positions, putting them net long 290,168 contracts, the CFTC said.

 

In other international news, Brazil should produce 49.9 million metric tonnes of corn in 2008-09, the National Commodities Supply Corp., or Conab, said Monday.

 

Total production is seen falling 15% from the 2007-08 season and slightly below Conab's May estimate of 51.4 million tonnes for 2008-09.

 

Brazil has two corn harvests. The first was reduced due to hot-dry weather, and the second crop has also shrunk, due to lower corn prices, according to Conab.