July 8, 2008

 

CBOT Corn Outlook on Tuesday: Lower on improving crop outlook

 

 

Chicago Board of Trade corn futures are expected to open sharply lower Tuesday on overnight losses as traders continue to remove a weather premium from the market.

 

In overnight trading, July corn was down 26 1/2 cents to US$6.90 per bushel, September corn was down 26 1/4 cents to US$7.01 1/2 per bushel and December was down 27 cents to US$7.20.

 

Corn is called 25 to 30 cents lower Tuesday, as prospects for the crop improve amid moderate rainfall and temperatures.

 

"From everyone I've talked to, the crop is starting to look better, it's starting to outgrow its early season problems," said Joel Karlin, an analyst with Western Milling.

 

Along with the more optimistic crop outlook, outside markets such as crude oil and the dollar are also pressuring the market. That combination prompted fund liquidation Monday, which traders and analysts expect to continue. Some analysts see December corn testing US$7 this week.

 

"It's usually a three-day affair when funds start to liquidate," a trader said.

 

Tuesday's daily trading limit is expanded to 45 cents from 30 cents because several contracts closed down by the limit Monday. July will continue to trade without limits because it is in delivery.

 

Open interest dropped almost 14,000 contracts Monday, which a trader said was a significant drop given volume was relatively low due to prices that were locked in at limit-down levels.

 

The DTN Meteorlogix forecast calls for scattered showers and thundershowers developing Tuesday afternoon and evening across the U.S. corn belt, with amounts between 0.20 and 1 inch. More showers and thunderstorms are expected across the eastern corn belt Wednesday.

 

Despite historic flooding in parts of the Midwest last month, analysts say rainfall at this point is helpful to the crop in most places.

 

Analysts say the week after the Fourth of July holiday is historically one of the more important trading weeks of the year, and can set the tone for the rest of the summer.

 

"Existing price trends can accelerate or be halted in their tracks," a technical analyst said. "Bears did get a good jump Monday."

 

The technical analyst said corn bulls still have the overall near-term technical advantage, however. The bulls' next upside price objective is to push and close December prices above solid technical resistance at US$7.80.

 

The USDA said the good-to-excellent condition rating for the U.S. corn crop was 62%, one percentage point above the preceding week, in line with analysts' estimates of a one- to three-point rise. Good-to-excellent conditions were at 70% last year.

 

The USDA said 6% of the U.S. corn crop was silking, up from 3% last week but below the five-year average of 19%.

 

Despite Monday's losses and bearish weather patterns, analysts also warn the market will remain very sensitive to weather changes. Prolonged hot, dry weather could be very damaging to the crop, and would spark another rally, they said.