December 18, 2006
CBOT Corn Outlook on Monday: Down 2-3 cents on e-CBOT, China ethanol reports
A softer overnight trade and news China might be halting some of its ethanol expansion could weigh on Chicago Board of Trade corn futures Monday.
Most-active March corn is called to open 2 to 3 cents a bushel lower.
In e-cbot trade, March corn fell 3 1/2 cents to US$3.65 1/2.
China is seeking to rein in corn use in biofuel projects, over food security concerns, the official China Daily reported Monday, citing government officials.
This is the first time the government has explicitly stated its policy on biofuel development. Corn prices in China have risen around 15%-20% across the country in the past month and the government has taken measures to check soaring demand from processors in a bid to ensure stable food supplies, analysts said.
"The National Development and Reform Commission has suspended the approval of new ethanol projects that use corn as a feedstock, so as to control industrial consumption of corn," said Zhang Liwei, an analyst at the China National Grains & Oils Information Center, which is under the State Grain Administration, according to the story.
"There's been some chatter in the trade about this ... that China wants to curb its ethanol expansion," said Don Roose, president, US Commodities.
Roose said with China's great desire to be self-sufficient in corn production, the country is trying to deal with keeping corn for human and livestock use and fulfilling the needs of exploding ethanol industry without turning to reliance on corn imports. Roose added this stance seems to be "a 180 turn" from previous views that China was going to invest in ethanol. "The trade doesn't know which way to go on this," he said, noting corn prices in China have seen sharp rises lately.
Mild pressure might also come from benign weather in South American corn-growing regions which continues to be beneficial for crop development.
Analysts said Friday's commitment of traders report from the Commodity Futures Trading Commission could be construed bearishly as funds were a little more long than most market participants expected. The CFTC said funds were net long 291,875 contracts CBOT corn futures and options combined. This is a gross rise of 11,598 long contracts. Meanwhile, commercials are net short 190,957, with gross shorts rising 2,990 contracts. Activity in corn recently has been range-bound, with US$3.63 to US$3.76 the general range for March futures since Dec. 6. The CFTC data is as of Tuesday.
All of these factors could mesh to create weaker prices Monday; however, several analysts said there is still interest in buying breaks in corn due to longer-term fundamentals.
On day-only technical price charts, March corn posted an inside trading day, as the previous day's high and low price exceeded Friday's range. Usually this indicates indecision, analysts said. A technical analyst said CBOT March corn bulls still have the near-term technical advantage, but prices have worked sideways for two weeks. The next upside objective is US$3.80, while bears' downside objective is a close under US$3.63 1/2. First support for corn is seen at US$3.66 1/2 and then at US$3.63 1/2.
In Asia, premiums for corn could fall a bit over the week in anticipation of some long liquidation at CBOT ahead of the year-end. Still, strong demand for corn is likely to underpin prices. Additionally, Singaporean traders told Dow Jones Newswires the grains market in Asia is likely to remain quiet until the end of the year as high international prices discourage buyers from importing grains aggressively.
Meanwhile, China's largest corn processing firm plans to invest US$1.53 billion to set up a corn processing facility in Heilongjiang province in the northeast, the company said Monday, for eventual use in food, textile and chemical industries. The construction of facility will begin in 2007 and will last for four to five years, it added.
Lastly, the U.S. Department of Agriculture Monday said the U.S. sold 116,000 metric tonnes of corn to unknown destinations.