August 5, 2008

 

CBOT Corn Review on Monday: Sharply lower on liquidation, weather

 

 

Broad-based commodity liquidation and favorable crop weather pushed Chicago Board of Trade corn futures sharply lower Monday.

 

September corn ended down 29 1/2 cents to US$5.35 1/2 per bushel, December corn ended down 29 1/2 cents to US$5.55 1/2, and March corn ended down 29 1/4 cents to US$5.75 3/4. Prices were 30 cents lower, the daily trading limit, periodically throughout the day.

 

The December contract broke below key technical support at last month's low of US$5.63, an analyst said. That price was also the 200-day moving average, and December closed below the average for the first time since October.

 

Monday's plunge was triggered by bearish weather and outside market factors, traders and analysts said.

 

"We're in the third day of what has turned out to be fairly massive speculative liquidation, driven by trade ideas of corn yields that are up between 155 and 160 bushels per acre," said Kent Beadle, market analyst for Country Hedging.

 

Beadle and other analysts see yields lower, in the low 150s. But that would still be above the U.S. Department of Agriculture's July estimate of 148.4 bushels per acre.

 

A swath of commodities fell Monday, driven in part by concerns over demand in China, traders said. China's demand is expected to fall temporarily as the country restricts manufacturing and other activity to accommodate the Olympics. While that is seen as a short-term factor that should pass, one trader said there are also concerns about an economic slowdown in the country that would have a significant impact on commodities.

 

Falling prices for crude oil and soybeans in particular pressured corn on Monday, traders said.

 

Weather, which had given the market modest support last week, is now considered bearish, with no long-term heat threat in the forecast.

 

"The only thing that's going to give us a rally is the weather," said Brian Hoops, president of Midwest Market Solutions.

 

The trade expects corn rated good or excellent will remain steady or drop by up to two percentage points in the U.S. Department of Agriculture's crop progress report, scheduled to be released at 4 p.m. EDT.

 

Steady condition ratings would be a positive sign for the crop, a trader said, since corn conditions usually deteriorate this time of year.

 

Although end-users have at times provided underlying support to the market during its recent plunge, analysts said they are not a factor when corn has the downside momentum it had Monday.

 

"End-users are quite happy to sit on the sidelines and say 'wow, the index funds are giving us a great opportunity to own corn a lot cheaper,'" Beadle said.

 

Corn's daily trading limit will be expanded to 45 cents Tuesday, according to the CME Group Web site.

 

CBOT oats futures ended lower. September oats ended down 9 cents to US$3.59 per bushel, December oats ended down 9 1/2 cents to US$3.78 and March oats ended down 9 1/2 cents to US$3.97 1/2. The December contract plunged and closed below its 200-day moving average of US$3.83 for the first time.

 

Ethanol futures also closed lower. September ethanol was down US$0.136 to US$2.247 per gallon and December ethanol was down US$0.149 to US$2.250.