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Corn Backs Off But Fundamentals Still Bullish

Corn – Corn shed some of its recent gains on profit-taking due to technically overbought conditions. The fundamental picture remains very bullish thanks in part to the lowest inventory figures since 1984. The grain markets have been aided by very strong overseas demand, along with a weak U.S. Dollar. While domestic prices are very high, the slumping greenback has made Corn a cheap import for countries with relatively strong currencies. China's demand has not waned and it is unlikely that high prices would due much to curb the nation's appetite for the grain, as we have seen with other commodities like copper, nickel and crude oil. Attractive Soybean prices may cause farmers to divert acres away from Corn, much the same way Corn diverted acres away from Beans this past crop year. March Corn remains very overbought, closing yesterday's trading at 91 percent on the 9-day RSI. This may put some downward pressure on the Corn market in the form of profit-taking, but the chart remains bullish barring some sort of gap reversal. Support comes in at 493, 498 and 505, while resistance can be found at 517, 522 and 529.

Gold – Gold futures continue to shine this morning on a weaker U.S. Dollar and lower stock index futures. The sagging equity markets and increased likelihood of future rate cuts by the Fed have given traders little incentive to dump positions. Physical demand for Gold remains very strong, as evidenced by the purchase of 10.75 metric tons by the StreetTracks Gold Trust ETF yesterday. The outlook for precious metals remains rosy due to the lack of alternatives, as global equities have been slumping, some other commodities are trading at levels difficult to justify based on fundamentals and treasuries/fixed income instruments lack the inflation hedge feature of commodities. February Gold remains very bullish on the daily chart, but yesterday's choppiness did form a spinning top candlestick, indicating the possibility of a near-term reversal or consolidation. The technically overbought conditions could influence traders to take profits. Support comes in at 892.40, 881.40 and 869.60, while resistance can be found at 915.10, 926.90 and 937.90.

10-Year Notes – March 10-Years are trading at new contract highs on the sell-off in equity futures and the continuing mortgage crisis. The treasury markets have seen a huge inflow of funds from nervous equity traders over the past few weeks. The subprime crisis – fresh in the minds of traders due to Citigroup's earnings release this morning – has certainly aided the “flight to quality” effect the market has seen. Today's retail sales report is expected to show zero growth despite the holiday shopping season, and could give further evidence of a need for the Fed to slash rates once again. The market has already priced in steep rate cuts from the Fed, so the central bank will have to act swiftly in order to appease fixed income bulls. The market will also have PPI data to mull over today, and a sharp increase in prices could cause prices to back off. If March Notes are able to hold rallies above 115-23.5, it could signal a breakout and add to the bullishness the market has seen. The RSI is beginning to creep toward overbought territory, which may inhibit further advances. Support comes in at 115-03, 114-22 and 114-12, while resistance can be found at 115-26, 116-04 and 116-17.

Rob Kurzatkowski, Commodity Analyst