November 6, 2009

 

CBOT Corn Outlook on Friday: Lower on weather, macro market pressure

 

 

Chicago Board of Trade corn futures are expected to open weaker Friday following overnight losses and a morning unemployment report that has outside markets on the defensive.

 

Corn is called 1 to 3 cents lower. In overnight trade, December corn was down 1 cent to US$3.75 1/2 per bushel and March corn was down 1 1/2 cents to US$3.88 3/4.

 

The markets are digesting a higher-than-expected rise in U.S. unemployment, up at its highest levels in 26 years. That is taking its toll on crude oil and other commodities, traders said, which should pressure corn early on, traders said.

 

A trader said the jobs report and outside markets will certainly be a factor, although he noted that corn this week has often moved opposite the direction indicated by outside markets.

 

"I'm not going to buy too much into that strong correlation," the trader said. "We've been consistently diverged this week."

 

The market has little fundamental support at the moment, as warm, dry weather allows farmers to pick up the harvest pace. Weather into next week looks mostly favorable, traders say.

 

Although the harvest is picking up, farmers are mostly getting their soybeans first and letting corn sit in the field, traders say. That is the main reason the retreat in corn prices Thursday was limited compared to soybeans' losses, traders said.

 

The trade is looking ahead to Tuesday's supply and demand report and updated crop projections from the U.S. Department of Agriculture. The report will be released Tuesday at 8:30 a.m. EST.

 

While noting CBOT corn has been among the worst performing commodities in terms of spot price performance this year, Deutsche Bank sees improving fundamentals. It expects the USDA to downgrade its corn crop projection in Tuesday's report, tightening supply side fundamentals.

 

At the same time, demand, particularly for ethanol, will be strong, analyst Michael Lewis says in a research note.

 

"We believe one way to position for strong corn demand and lower yields today versus the risk of higher corn arceage and moderation ion growth in corn use for ethanol in the next crop year is via a long Jul '10 vs. short Dec '10 corn time spread," he said.

 

The next upside price objective is to push and close prices above major psychological resistance at US$4.00 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 this week's low of US$3.59 1/4 a bushel.

 

First resistance for December corn is seen at US$3.80 and then at US$3.85. First support is seen at Thursday's low of US$3.76 and then at US$3.70.