July 22, 2008

 

CBOT Corn Outlook on Tuesday: Up slightly in modest technical bounce

 

 

Chicago Board of Trade corn futures are expected to open slightly higher Tuesday, as traders eye a potential technical bounce amid an oversold market.

 

Corn is called 1 to 3 cents higher. In overnight trading, September corn was up 1 1/2 cents to US$5.90 3/4 per bushel, December corn was up 1 1/4 cents to US$6.09 1/2 and March corn was up 1 1/4 cents to US$6.29.

 

Analysts said that after dropping steeply this month, the market is likely due for a correction. The December contract has fallen from a close of US$7.77 on July 3 as favorable crop weather has boosted the outlook for corn.

 

"It's been oversold for a few days," said John Kleist, broker/analyst with Allendale in McHenry, Ill. "We dropped US$2 in rapid succession."

 

Analysts said a drop in open interest Monday indicated the market's downside momentum may be waning.

 

Traders and analysts don't expect a significant rally, however. A trader said there could be "a short-covering bounce, but we need an input to sustain it."

 

The market will continue to find little support from weather in the U.S. corn belt. The DTN Meteorlogix forecast calls for dry conditions with just a few showers Tuesday and Wednesday, with episodes of scattered to widely scattered showers and thunderstorms in western areas Thursday through Saturday.

 

The forecast says conditions are mostly favorable for the crop, although parts of the northwest corn belt could use more rain. No excessive heat is in the forecast.

 

"We haven't seen anything so far that would indicate a bullish turn in the weather," a trader said.

 

Although ideal crop weather since last month's flooding has pushed the market lower, Kleist said a lot of the drop was also due to a "technical collapse." Kleist and other analysts say that there's still plenty of growing season left, and yields are still uncertain.

 

"Now we have to look at fundamentals," Kleist said. "This crop hasn't been put to bed yet."

 

Although corn conditions are improving, the crop remains behind schedule, the U.S. Department of Agriculture reported Monday.

 

The USDA said silking of the U.S. corn crop stood at 34% in the week ended July 20, up from 13% the previous week but below the five-year average of 60%.

 

The USDA said the good-to-excellent condition rating for the U.S. corn crop was 65%, one percentage point above the preceding week, in line with the expectations of traders, who estimated the percentage would remain steady or climb up to three percentage points.

 

The report would have little effect on the market Tuesday, traders said.

 

The next upside price objective is to push and close December prices above solid technical resistance at US$6.50, the analyst said. The next downside price objective for the bears is to push and close prices below solid technical support at US$6.00.

 

First resistance for December corn is seen at US$6.15 and then at US$6.20. First support is seen at Monday's low of US$6.02 3/4 and then at US$6.00.
   

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