August 7, 2008

 

CBOT Corn Outlook on Thursday: 5-7 cents higher on bounce, trade awaits EPA

 

 

Chicago Board of Trade corn futures are expected to open 5 to 7 cents higher Thursday on overnight gains and ideas that the market is oversold, traders said.

 

In overnight trading, September corn was up 7 3/4 cents to US$5.15 3/4, December corn was up 7 1/2 cents to US$5.35 1/4 and March corn was up 6 3/4 cents to US$5.54.

 

After plunging almost a dollar in the December contract in five days, the market is due for a rebound, analysts said.

 

Corn is also expected to get support from outside markets, as crude oil has climbed following news that a key oil pipeline supplying crude to Europe could be shut for five weeks following an explosion Tuesday.

 

There remains little fundamental news to support the market, as weather conditions remain favorable to the crop, with periodic rainfall and cool temperatures this weekend, according to DTN Meteorlogix.

 

The market is anticipating a government decision Thursday that could have an impact on ethanol production and corn demand.

 

The U.S. Environmental Protection Agency said that it will announce at 1 p.m. EDT whether it will put on hold or roll back a congressionally mandated requirement that more ethanol be blended in to the fuel supply.

 

Earlier this year, Texas Gov. Rick Perry petitioned the EPA to reduce the requirement by half, from 9 billion gallons for this year. He said that the diversion of corn - a staple for cattle, pigs and chicken - to ethanol production was driving up corn prices, threatening damage to the state's beef, chicken and dairy industries.

 

Traders and analysts expect the EPA will reject the request. Approval of the request would be seen as bearish for corn.

 

The U.S. Department of Agriculture reported net export sales of 1,056,300 metric tonnes for the week ended July 31, including 337,900 metric tonnes for the 2007-08 marketing year and 718,400 metric tonnes for the 2008-09 marketing year. The report exceeded analysts' expectations of 500,000 to 900,000 metric tonnes.

 

CBOT grains and soybeans fell yesterday amid rumors that a major fund was forced to exit a large long position. A trader said there was no steep drop in open interest to back up the theory that it happened on Wednesday, but he suggested a fund may have exited its long position over a few days.

 

"There's definitely a structural component that has exacerbated the weakness in the market," the trader said.

 

The trade is also looking ahead to Tuesday's crop production report from the USDA. The market could stabilize ahead of the report, traders said.

 

"We thought that yesterday, so I say that with a little trepidation, but it makes sense," a trader said.

 

The next upside price objective is to push and close December prices above solid technical resistance at US$5.50, a technical analyst said. The next downside price objective is to push and close prices below solid technical support at the March low of US$5.13 1/4.

 

First resistance for December corn is seen at US$5.36 1/4 and then at US$5.45. First support is seen at Wednesday's low of US$5.22 1/4 and then at US$5.13 1/4.