December 6, 2008

 

CBOT Corn Review on Friday: Sharply lower on demand, economic gloom

 

 

The bearish outlook for the U.S. economy on Friday continued to batter Chicago Board of Trade corn futures, with the December contract closing below US$3 for the first time since October 2006.

 

December corn ended down 24 3/4 cents at US$2.93 1/2 a bushel, March corn ended down 24 3/4 cents at US$3.09 1/4 and May corn ended down 25 3/4 at US$3.19 1/4.

 

Weak demand, and little hope that it will rebound soon, is driving corn lower, analysts said. The close below US$3 adds psychological pressure to the market, traders said. Prices are down from a high near US$8 in late June, when many were predicting corn would climb even higher.

 

"Everyone was drinking the same Kool-Aid, and now they're spitting it out," said Joel Karlin, an analyst with Western Milling.

 

Outside markets were mostly bearish during the session. U.S. stocks opened sharply lower following a government report showing more than 500,000 jobs lost in November. Corn was sharply lower in early trading and dropped almost by its 30-cent daily limit before recovering late in the session, when U.S. stocks rebounded.

 

As long as the dollar continues to gain, commodities will dip lower, a trader said. However, he doubts that crude oil will continue falling and break below US$40, and some analysts predict.

 

Demand is weak on all fronts, Karlin said. Export sales are about half what they were last year, feed demand is weak due to problems for livestock and dairy producers, and ethanol is suffering as prices are at a 50-cent premium to gasoline, he said.

 

Karlin said the only potentially bullish factor in the market is that it "may be difficult to get an increase in corn acreage" given current prices. Other than that, there's little positive news, he said.

 

"The markets are closed the next two days, so it can't go down," Karlin said. "It's getting extraordinarily difficult to find any glimmer of hope."

 

The corn market is mostly focused on outside forces, although traders and analysts are keeping an eye on the crop in South America.

 

Argentina's corn crop got a boost from rainfall last weekend, which has helped crops damaged by frost on Nov. 16 and early drought recover, the Buenos Aires Cereals Exchange said in its weekly crop report Friday.

 

The exchange is tentatively keeping its corn forecast at 2.64 million hectares, but said "there are expectations that (late corn planting) will be lower than initially expected."

 

The next 15 days will be key to determining the total planted area, according to the exchange.

 

CBOT oats futures ended sharply lower. December oats ended down 14 cents at US$1.84 1/2 a bushel, March oats ended down 14 1/2 cents at US$1.99 and May oats ended down 14 1/2 cents at US$2.08 1/2.