December 27, 2006

 

CBOT Corn Outlook on Wednesday: Weaker start seen after e-CBOT loss

 

 

Corn futures at the Chicago Board of Trade are expected to trade steady to 1 cent lower Wednesday, with light pressure expected from overnight losses as profit taking is possible following recent gains.

 

However, with a bullish technical chart picture for corn, downside will likely be limited, analysts said.

 

Most active March is called to open steady to 1 cent weaker.

 

In e-CBOT trade, March corn slipped 1/2 cent to US$3.87 1/2 a bushel.

 

"The overnight trade was weaker, and the Asian markets were down. Palm oil, which led the soy complex rally yesterday, was down overnight. Chinese soy futures were off overnight, so the world environment is a little different," said Don Roose, president, US Commodities.

 

There was little fresh fundamental news out overnight, as such, market participants said the market will likely focus on the technical outlook for corn, which is solidly bullish.

 

A technical analyst said near-term support for March corn could come at the small gap posted Tuesday between US$3.84 1/4 to US$3.84 3/4. Bulls remain in control and the contract high of US$3.93 is the next challenge, with US$4 the major psychological resistance. On the downside, first support lies at that above mentioned gap, with second support at US$3.82.

 

The upside is still very strong resistance, Roose said.

 

"We keep turn back from US$4 in the July contract, which seems to be telling us we're getting a little ahead of ourselves," he said.

 

Volume in corn has been light due to the holidays and this week is no exception, sources said. Light volume can lead to erratic trading conditions, they warned.

 

If corn does come into some profit taking because of the recent gains, downside is likely to be limited, as the fundamental story for corn is strong. Ethanol demand remains stout, as does export business. Although Tuesday's export inspections from the U.S. Department of Agriculture were down 7.6% from the previous week, the accumulated corn inspections are a robust 20.3% higher than last year.

 

Furthermore, livestock usage of corn remains relatively strong, given the jump in corn prices. Livestock are the biggest users of corn and most price-sensitive. Friday's USDA cattle on feed report showed cattlemen haven't reacted as negatively to the jump in corn prices as some market participants expected. Cattle placed on feed during November were 7.6% below the previous year. Analysts' average estimate predicted a 9.4% decline.

 

Another livestock report, the USDA quarterly hogs and pigs report, is due for release Wednesday afternoon after the close. A modest increase in the U.S. hog herd is expected as swine producers remain profitable, although higher feed costs are limiting growth. A survey of analysts estimates the kept-for-breeding figure will be 1% above last year. Hog weights have been lighter than normal as farmers seek ways to control input costs.

 

"The highlight of the hog report is we're not in a contraction phase, we are still expanding. With the aggressive expansion of the ethanol industry, the food for fuel fight remains," Roose said.