September 22, 2008

 

CBOT Corn Outlook on Monday: Up 8-10 cents on outside markets, bailout plan

 

 

Chicago Board of Trade corn futures are expected to open 8 to 10 cents higher Monday on overnight gains and expectations that the government's bailout of financial institutions will support commodities.

 

In overnight trading, December corn was up 10 3/4 cents to US$5.53 per bushel and March corn was up 9 1/4 cents to US$5.68 1/4.

 

Analysts said there is little strong fundamental news for the market, and that corn could be supported by outside markets, including higher crude oil and gold, and a weaker dollar. A weaker dollar makes corn more attractive to export.

 

The government's planned bailout boosted the stock market on Friday, which encouraged traders who had been worried about weakening global demand, traders said. Analysts said Monday that the move could stoke inflation, which would continue to weaken the dollar.

 

The taxpayer bailout represents a "watershed shift in psychology," Dennis Gartman of The Gartman Letter wrote Monday.

 

Gartman said "last week's decisions by the US government are inordinately inflationary and are highly supportive of commodity prices."

 

With last week's chaos in the financial markets dying down, analysts say the market may begin to focus more on corn fundamentals. But Brian Hoops, president of Midwest Market Solutions, said there was little fundamental news to chew on Monday.

 

"There really isn't anything weather-wise to spark a rally," Hoops said, adding that corn is following other markets.

 

The corn belt was dry through the weekend, except for rain in far southern areas, according to DTN Meteorlogix. The forecast calls for warm, dry conditions to continue through Friday, with temperatures mostly above normal. There remains little threat of a frost in the forecast, which is good news for a crop that needs extra time to mature this year because it was planted late.

 

The next upside price objective is to push and close December prices above resistance at US$5.60. The next downside price objective is to push and close prices below major psychological support at US$5.00.

 

First support is seen at Friday's low of US$5.27 1/4 and then at last week's low of US$5.24.

 

Last week's turmoil in the financial sector prompted liquidation by index funds, traders said, which was shown in the Commodity Futures Trading Commission's commitment of traders report released Friday.

 

Index funds decreased long CBOT corn futures and options positions by 7,718 contracts as of Sept. 16, according to a supplemental report from the CFTC. The index funds remained net long 330,898 contracts in corn, so the cut was just a fraction of their holdings.

 

Trend-following funds, which move in and out of markets more easily than index funds, increased short CBOT corn positions by 1,622 contracts and were net long 50,706 contracts, the CFTC said.