January 20, 2009

Chicago Board of Trade corn futures are expected to open higher Tuesday following overnight gains, with dry South American weather and concerns about planted acres seen as supportive.

 

Corn is called 5 to 7 cents higher. In overnight trading, March corn was up 7 1/4 cents to US$3.98 1/4 per bushel, May corn was up 7 1/2 cents to US$4.09 1/4 and July corn was up 5 3/4 cents to US$4.18 1/4.

 

The market followed its surge from Friday despite bearish outside markets, including a stronger dollar and weaker crude oil. Those markets should limit corn's upside potential Tuesday.

 

Analysts say corn can break US$4, but it isn't likely to climb much further due to weak fundamentals.

 

Both corn and soybeans continue to focus on drought in South America, which is threatening a crop that in many areas is in a critical stage of development. Parts of Brazil have received rains during the past 24 hours, but Argentina remains dry, and DTN Meteorlogix forecasts more dry weather through Saturday.

 

Corn gained Friday thanks in part to unwinding of the corn-soybean spread, traders said. Analysts cite concerns that soybeans' rally will make corn unattractive economically for farmers and that planted acreage will suffer this year.

 

But an analyst said that with nitrogen prices dropping and cash rent prices high, "corn is the one that can pay the bills down the road." Nitrogen is a key corn fertilizer. Other analysts point out that corn still has weak demand and a large projected carryout of 1.790 billion bushels, according to the government.

 

The next downside price objective for the bears is to push and close March prices below solid technical support at last week's low of US$3.58 3/4 a bushel, a technical analyst said. The next upside price objective is to push and close prices above major psychological resistance at US$4.

 

First resistance for March corn is seen at Friday's high of US$3.93 and then at US$4. First support is seen at US$3.85 and then at US$3.80.

 

Speculators cut 1,668 contracts from their CBOT corn long positions and added 10,340 contracts to their short positions, putting them net short 24,310 contracts, the Commodity Futures Trading Commission said Friday.

 

The supplemental commitment of traders report also showed commercial funds added 9,276 contracts to their long positions and cut 36,363 contracts from their short positions, putting them net short 132,025 contracts. Index funds cut 11,897 contracts from their long positions and added 2,072 contracts to their short positions, putting them net long 232,641 contracts, the CFTC said.