July 22, 2008


CBOT Corn Review on Monday: Continues to slide on favorable weather



Chicago Board of Trade corn futures continued to slide Monday, as the market broke below perceived technical support amid favorable corn-growing weather forecasts.


September corn closed down 20 1/4 cents to US$5.89 1/4, December corn closed down 20 1/4 cents to US$6.08 1/4 and March corn closed down 20 cents to US$6.27 3/4.


The market has completely erased gains from June's U.S. corn belt flooding, and prices are threatening to break below the trading range that was in place before that rally, traders and analysts said.


Prices for September broke below US$6, and the intraday low of US$5.84 was the lowest price since April 1. An analyst said that as long as weather remains favorable and crude oil doesn't spike, prices could continue to fall.


"On a technical setup, it looks like it's got more room to the downside," said Daniel Pavolonis, senior market strategist for Lind-Waldock. "It pulled back so hard, I think the next level might be down around US$5.50." Support beyond that is seen around US$5, he said.


Weather remains the key bearish influence on the market. Periodic rainfall and a lack of extreme heat have given the crop the opportunity to rebound from last month's floods, analysts said.


A trader said "we're further along in the growing season" and that the market may not find support at the bottom end of the pre-flood trading range.


"There's enough justification to take it back further if you wanted," the trader said.


Traders and analysts say yield expectations are increasing. The U.S. Department of Agriculture projected yields at 148.4 bushels per acre earlier this month, but trade expectations are now at 150 bushels or higher.


The trade expects the improving crop outlook will be reflected in Monday's crop progress report. Traders expect the crop rated good or excellent will remain unchanged or increase up to three percentage points. The report from the USDA will be released at 4 p.m. EDT.


Traders and analysts say the market is awaiting the Aug. 12 production report from the USDA, which will provide a clearer picture of the impact of June's flooding.


With December prices having dropped from a July 3 close of US$7.77, some believe the market is oversold. Shawn Hackett, president of Hackett Financial Advisors, wrote in a commentary Monday that the market's correction is "reaching a crescendo as we speak" and that he is now bullish on corn from now until the fall.


"Rain makes grain is pervasive right now, and all the ills of the floods that worried the market just a month ago now seem to have no impact on final yields," Hackett wrote. "They do and they will."


He said that "for end users, you have been given a gift to get whole. Please buy your needs while the economics remain manageable again."


CBOT oats were lower in light trade, a trader said. September oats were down 14 1/4 cents to US$3.86 per bushel, December oats were down 12 3/4 cents to US$4.04 and March oats were down 12 3/4 cents to US$4.23. The trader said oats followed corn lower.


Ethanol futures were lower. September ethanol was down US$0.052 to US$2.347 per gallon and December ethanol was down US$0.030 to US$2.330.


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