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Corn Exports Show No Letup

Corn – Corn futures posted solid gains yesterday on strong export data. Unlike the rest of the CBOT grain complex, the stabilization in the U.S. Dollar and rising prices did little to curb demand in Corn. Market chatter suggests that a host of factors may lead Soybean acres to increase significantly and take away from Corn acres in 2008, including attractive Bean prices, record Corn fertilizer costs and crop rotation. The ethanol hype over the past few years has also caused farmers to over-plant Corn, which has done ecological damage in the Midwest and may make the region more prone to drought conditions. Longer-term meteorological models suggests the La Nina weather pattern is picking up in the Pacific, which could cause dry conditions in both North and South America in the upcoming crop year. March Corn found support at the 9-day moving average over the past two trading sessions, showing that the market has maintained short-term positive momentum. Momentum is showing positive divergence from both price action and the RSI. Corn remains at overbought levels on the RSI, which may leave the market susceptible to profit-taking pressure. The bearish crossover on the stochastics on Monday was negated by the indicator lines crossing back up as a result of yesterday's move. Nonetheless, the indicator remains above the 80 percent mark, which gives further indication of overbought conditions. Support comes in at 430.25 and 411, while resistance may be found at contract highs of 443.25 and 465.

Coffee – Coffee fell for the second consecutive day on lack of buying interest in commodities and indications that Brazil's output may be larger than previously thought. The drought conditions in the key Coffee-growing regions may make much less of an impact on the 2008 crop than earlier projections, according to a joint report released by Fortis Bank and VM Group. The report is showing the possibility of a 50 million bag crop, trumping earlier estimates of 44 million bags. At this point, it is still too early to tell how the inclement weather has affected the crop in the infant stages of growth. Commodity fund activity was very light, with the inflationary GDP deflator figure being offset by a strong Dollar. In general, softs have gotten a lift from fund buying in recent weeks, as investment managers have diversified away from commodities that have made explosive moves over the year, such as metals and energies. Some of the selling may also be attributed to profit-taking ahead of year end, as well as the technically overbought conditions. The RSI, SMI and slow stochastics are giving overbought readings, with the latter two indicators showing bearish crossovers. The daily chart shows two consecutive spinning top candlesticks, which points to indecision among traders and may suggest a short-term reversal of the recent uptrend. March Coffee is still trading above the major moving averages and has not yet shown major evidence of a reversal, despite the claim made by the oscillators. Momentum has been resilient in the face of yesterday's sell-off. Support comes in at 132.50 and 131.25, while resistance can be found at 135.25 and 136.75.

Dow – Stocks finished higher in another choppy trading session yesterday. Buyers stepped in despite the first ever losses posted by investment banking powerhouses Bear Stearns and Morgan Stanley due to writedowns related to subprime loans. Leading indicators were weaker than expected at -0.4 percent, initial claims rose more than forecast and the revised GDP deflator showed a higher rise in prices than the preliminary release, all of which were equity bearish. Traders may key on the deflator figure, which paints a truer inflation picture, as it is shows an unfiltered view of the change in consumer prices, whereas the CPI data leaves out certain consumer staples. Online retailers are expected to have a stronger holiday season that previously believed, a fact that helped spark a rally in both tech and retail stocks. After the bell, RIMM posted strong earnings, which doubled last year's profits for the same period. The market will digest more inflation and income data with the release of the PCE incomes, spending and inflation figures at 7:30 AM CST. The March Mini Dow chart remains in a tight consolidation pattern, suggesting more downside may lie ahead. The 9-day moving average crossed the 18-day, which is a negative signal in the near-term. Momentum is showing positive divergence from the RSI, which conflicts with the chart to show a bullish bias. The RSI is quickly approaching oversold levels, which may support the market going into the New Year. Support comes in at 13185 and 12900, while resistance may be found at 13535 and 13645.

Rob Kurzatkowski, Commodity Analyst