PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:41 GMT, Wednesday, 9th Jul 2014, by Agrimoney.com
Corn heads lower again. But will it drop to $3.50 a bushel?

Just how low can corn futures go?

Morgan Stanley on Monday had them standing around $4.50 a bushel for the June-to-August period, and averaging $4.35 a bushel in the next marketing year.

Last week, Rabobank had them averaging $4.20 a bushel in the current quarter, and $4.07 a bushel in the last three months of the year.

Goldman Sachs has forecast corn futures falling to $4.00 a bushel towards the back end of 2014.

'Sign of exhaustion'

But the most recent behaviour of futures may have put far lower values in the markets' sights, depending on your view of the significance of a chart gap on Monday, when the December contract fell so hard it left a space of 4 cents a bushel between its highest trading level that day and the low point of the previous session.

Brian Henry at Benson Quinn Commodities reported two viewpoints concerning the gap, the first being that it was a "sign of exhaustion" from a technical perspective, which signal the end of a move.

That would "fit with the fact the market has been under heavy pressure during the $1.10-a-bushel move lower" over the past two months.

Yes, it was only on May 9 that the December contract stood at $5.14 a bushel.

'$3.50-3.55 a bushel level'

However, "on the other hand, the gap from $4.10 to $4.14 a bushel in December futures could be a measuring gap", otherwise known as a runaway gap, and which occur only mid-way through a price move.

"That would point to December corn prices ratcheting down to the $3.50-3.55 a bushel level before finding support," Mr Henry said.

He added that "with the idea that production will be quite good, but not knowing just how good, I feel the corn market would have value well above the $3.50-3.55 a bushel price level.

"I feel the corn market needs to work lower over time."

Another broker said: "All signs point to a bear market with a gap open lower in corn and soybeans after another favourable weather forecast."

'Due for a correction'

Whatever, with US growing conditions remaining benign, futures were certainly heading still lower on Wednesday, although the December contract was baulking at falling below $4 a bushel, standing at $4.02 a bushel as of 09:45 UK time (03:45 Chicago time), down 0.5% on the day.

The old crop September contract was less timid, standing down 0.5% at $3.96 a bushel, the lowest for a nearest-but-one contract in four years.

That said, CHS Hedging noted another technical sign, that "the market is oversold, and is due for a correction to the upside", if adding that a rally of $0.20-0.30 a bushel "should generate producer selling".

Report looms

Another factor for investors to take into account is the prospect on Friday of the US Department of Agriculture's monthly Wasde crop report, a highpoint of the agricultural commodities calendar.

The briefing should be downbeat, in factoring in the highest inventories revealed on separate data on June 30, besides potentially adjusting the corn yield estimate higher to account for the strong crop condition.

Investors expect the Wasde to show US corn stock of 1.232bn bushels as of the end of 2013-14, an 86m-bushel upgrade, and of 1.774bn bushels at the end of next season, a figure 48m bushels above the current forecast.

Nonetheless, could uncertainty over the data prompt a tail-off in the downswing?

"The weather continues to be a strong negative for prices, although selling should taper in front of the report," Citigroup's Sterling Smith said.

'Shelf of support'

That comment applied to soybeans too, although there was little sign of any tapering off yet, with the August contract down 1.3% at $12.31 a bushel, the weakest for a nearest-but-one contract in 11 months.

The November contract dropped 0.7% to $11.08 a bushel.

"Momentum studies indicate lower prices before finding a shelf of support in the soybean market," Brian Henry said.

The oilseed is also coming under pressure from fresh talk of cancellations soybean orders by buyers in China, the top importing country, where futures fell on the Dalian exchange too, by 0.5% to 4,347 yuan a tonne for January delivery.

Soybeans vs corn

Nonetheless, against corn, the oilseed still looks highly priced, with the November soybean: December corn ratio at 2.75:1, a historically high ratio.

"A more appropriate ratio of 2.5:1 would suggest November soybean futures at about $10.10 a bushel," Richard Feltes at RJ O'Brien said, assuming the Wasde will show US stocks of the oilseed ending 2014-15 above 400m bushels.

Investors actually expect a figure of 418m bushels, up 93m bushels on the current estimate, after a figure of 128m bushels for the close of 2013-14, an upgrade of 3m bushels.

Gasc tenders again

It was left to wheat to show some attempt at upward progress, but even then it was of a minimal 0.25 cents to $5.56 a bushel for Chicago's September contract.

The Wasde is expected to be less downbeat for wheat, showing a relatively small upgrade of 17m bushels to 591m bushels in the figure for end 2014-15 stocks.

And there are some bullish inputs into the market too, with Egypt's Gasc authority overnight unveiling a fresh tender, indicating demand at lower price levels, and the Rosario grains exchange cutting to 4.24m hectares, from 4.4m hectares, its forecast for Argentine wheat sowings.

Furthermore, there remain some concerns over damage to the European Union crop from harvest-time rains.

That said, there was plenty of such talk in the US too last month, but that has dissipated with talk of better-than-expected yields and quality in northern Kansas, and more northerly areas too.

'Strong sell signal'

Back among oilseeds, Kuala Lumpur palm oil dropped 0.6% to 2,370 ringgit a tonne, not far above the 2,362 ringgit a tonne reached last month which was the lowest price since October.

The market breached a strong technical floor in falling below 2,400 ringgit a tonne in the last session, triggering "a strong sell signal", AmBank said.

And that tugged on canola, which managed gains in the last session, against the market trend, but fell 0.7% to Can$459.30.

Canola, as an oil heavy rather than meal heavy oilseed, is particularly vulnerable to vegetable oil prices.

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