October 15, 2010

 

US corn futures slide as traders begin questioning demand

US corn futures settled lower for the second consecutive day Thursday (Oct 14) as traders took profits after a recent surge and began to question whether demand is holding up at high prices.

 

Corn for December delivery, the most-active contract, was down US$0.02, or 0.4%, at US$5.67 1/4 a bushel in late trading at the CBOT. The contract backpedaled after rising to a session high of US$5.79 3/4 a bushel in earlier trading.

 

Corn futures have been climbing since mid-July, topped off by a recent surge after the federal government slashed its estimates for the fall corn harvest last Friday (Oct 8). Futures on Wednesday (Oct 13) dropped for the first time in four sessions after reaching the highest level in more than two years.

 

"People are looking at this market and seeing it starting to struggle and thinking maybe we'd better book some of these profits. This market is getting pretty extended on the bull side," said Dale Durchholz, analyst for AgriVisor, an agricultural marketing service in Illinois.

 

Market participants have been looking for signs that high prices are slowing demand and were worried by talk that South Korea may be cutting back on grain purchases, Durchholz said.

 

"When you get at these high levels, we see a lack of end-user buying and we see a lack of any new fund buying. That's a warning sign," said Don Roose, president of US Commodities, an Iowa brokerage firm.

 

Commodity funds sold an estimated 6,000 contracts Thursday (Oct 14), traders said. They were heavy buyers during the recent run-up in prices.

 

Many analysts have projected front-month December corn will reach US$6 a bushel on supply worries and strong demand. Deferred contracts have reached that psychologically important price, but the December contract topped out at US$5.88 a bushel Wednesday (Oct 13).

 

Market participants "probably have to digest what we've done so far" before making another strong push higher, Roose said. Futures still have the ability to extend recent gains because the size of the crop is still unknown, traders said.

 

The US DA last week slashed its corn yield estimate more than traders had expected and raised worries the harvest wouldn't be enough to meet global demand. A larger-than-expected reduction in the government's estimate for corn supplies as of August 31, 2011-the end of the crop year-left little room for error with the next crop.

 

On Friday (Oct 15), traders will digest weekly export sales data from the USDA to assess demand. Corn sales for the week ended October 7 are expected to be large at 1.4 million to two million tonnes. If the USDA reports large sales and prices weaken, it will be a sign the market will struggle to extend the rally, Roose said.