August 15, 2008

 

CBOT Corn Outlook on Friday: Down 15-20 cents amid bearish outside markets

 

 

Chicago Board of Trade corn futures are expected to open lower Friday, as the market corrects from this week's rally amid bearish outside markets and continued commodity liquidation, traders said.

 

Corn is called 15 to 20 cents lower. In overnight trading, September corn was down 19 3/4 cents to US$5.38 per bushel, December corn was down 19 1/2 cents to US$5.57 3/4 and March corn was down 18 1/2 cents to US$5.78.

 

The market's rally Thursday, which followed large gains Wednesday, was likely overdone, traders and analysts said. Corn had climbed 30 cents, the daily trading limit, on Wednesday and surged more than 18 cents Thursday.

 

"This rally had no fundamental backing whatsoever," said Brian Hoops, president of Midwest Market Solutions. "It was all based on a technical reversal."

 

Open interest fell both Wednesday and Thursday, which indicates the rally was mostly on short-covering, traders said. The rally followed Tuesday's bearish government crop production report.

 

Broader concerns about the world economy, and a possible damping of demand for commodities, is expected to weigh on corn and other markets Friday, traders said.

 

Continued strength in the dollar and weaker crude oil prices are bearish for corn and other grains, analysts said. A stronger dollar makes U.S. exports less attractive, and oil's movement impacts corn because of corn's connection to ethanol, analysts say.

 

The recent gains do not indicate funds, which have liquidated heavily in recent weeks, are coming back to buy the market, analysts added. Funds appear to be continuing to liquidate, and fund activity has been a factor in this week's volatility, traders said.

 

Traders said weather remains mostly benign, despite Thursday weather forecasts calling for dry weather during the next two weeks, which some cited as a reason for Thursday's climb. Hoops said that he didn't think the forecast was much of a factor, but added that the crop is nonetheless behind schedule and will be vulnerable to an early frost this year.

 

"The crop is not out of the woods yet from a maturity standpoint," Hoops said.

 

Friday's close will be important, a technical analyst said. A weekly high close on Friday would be significantly bullish, while a lower close on Friday keeps the price downtrend in place on the daily chart.

 

The next upside price objective is to push and close prices above solid technical resistance at US$6.00, a technical analyst said. The next downside price objective is to push and close prices below solid technical support at Thursday's low of US$5.49.