December 24, 2008

CBOT Corn Outlook on Wednesday: Down 1-2 cents as weak demand lingers

Chicago Board of Trade corn futures are expected to open slightly lower Wednesday following overnight losses, as the market struggles to extend Tuesday's rally amid thin trading.

Corn is called 1 to 2 cents lower. In overnight trading, March corn ended down 2 1/2 cents to US$3.92 1/4 per bushel and May corn ended down 3/4 cents to US$4.04 1/4 and July corn ended up 1/4 cent to US$4.15 1/4.

The market could not follow through on Tuesday's technical rally in overnight trading, with crude oil weighing on the market. Although prices climbed by more than a dime Tuesday, traders and analysts said there's no clear reason for corn to continue to post gains.

"It seems too early to tell if there are some demand factors that are improving that are not yet visible," said John Kleist, broker/analyst for Allendale. "The other problem is that you're doing this on very light volume."

Thin trade is also expected Wednesday leading into the Christmas holiday. The market will close early at 1 p.m. EST Wednesday and will be closed Thursday. Analysts said short covering and some end-user pricing supported the market Tuesday and could continue to Wednesday.

Demand remains weak for feed, exports and ethanol. Traders and analysts say corn's recent rally could further hurt ethanol demand.

Concerns about the dryness of the crop in South America is adding support, some analysts said. The DTN Meteorlogix forecast calls for dry weather with only a few light showers in Argentina during the next seven days. Showers and cooler temperatures should ease stress to crops in Brazil, but "it will not end concerns as drier and hotter weather may return by the weekend."

The next downside price objective is to push and close March prices below solid technical support at last week's low of US$3.70 1/4, the technical analyst said. The next upside price objective is to push and close prices above solid technical resistance at last week's high of US$4.02 3/4. First support for March corn is seen at US$3.90 and then at US$3.85, a technical analyst said. First resistance is seen at Tuesday's high of US$3.95 and then at US$4.

Kleist called the US$4 mark a "porous border" for March corn.