U.S. corn futures are expected to open lower Tuesday on jitters about political instability in the Middle East and North Africa and the potential impact on commodity demand.
Traders predict Chicago Board of Trade futures will open 9 to 11 cents lower. In overnight trade, corn for March delivery fell 11 cents, or 1.5%, to $6.98 3/4 per bushel.
The market slumped overnight after initially climbing to a fresh contract high at $7.24 1/4, the highest price for front-month corn since July 7, 2008.
The losses were prompted by unrest in Libya and elsewhere in the Middle East, which is making investors increasingly nervous about the global economy, analysts said.
"The uncertainty overseas sends people out, to reduce their exposure to risk," said Shawn McCambridge, senior grains analyst for Prudential Bache.
The unrest, including increased violence in Libya, a key oil-producer, has sent crude oil prices skyrocketing. McCambridge said investors fear that higher energy costs could derail the recovery of the global economy, which would hurt commodity demand.
But he also called the decline a "knee-jerk" reaction to the political unrest, and that ultimately supply and demand fundamentals for corn remain very strong. The government projects U.S. supplies will be precariously tight this year.
The sharply higher energy prices could also have a supportive effect on corn, said Don Roose, president of U.S. Commodities in Des Moines, Iowa.
Because 40% of the U.S. crop now goes to ethanol, corn is tied to energy prices, analysts said. Higher gasoline prices will in turn support ethanol, which would give a boost to ethanol producers currently struggling with higher corn prices.
Traders have been watching for signs that high corn prices have been curtailing, or "rationing" demand, a step that's needed in order to conserve tight supplies.
"It makes it more difficult for rationing to take place when energy's skyrocketing," Roose said.
Analysts add that the market is in a precarious position technically, which could accelerate losses if the market slumps. But end-users have used recent breaks in prices to make purchases, Roose said.