Will corn see a short-term break out??
Oct 28, 2013
Corn continues to trade in a narrow range right around $4.40. In fact the DEC13 corn contract has traded between $4.50 and $4.32 the entire month of October. From a technical perspective, an extended period of consolidation along with the past two sessions forming "inside" days on the chart, leads me to believe some type of short-term breakout is nearing. Unfortunately for the bulls it feels like the DEC13 contract will post a $4.20'ish type print (or lower) before we see the contract trade back in the $4.60's. There is starting to be some talk that even though the basis has been improving in some areas, eventually the final 20-25% of our record US corn crop will have a tough time finding a home on the farm. Basically meaning, even though US producers have invested heavily the past few years in storage, there is still not enough in the northern areas to store it all. Hence the producers might not have much choice but to sell a portion of their final harvested bushels, which could put some pressure on the basis as well as flat-price as harvest gets closer to completion. My guess is once the wave of producer sell-pressure is digested and the US producer has his remaining bushels securely locked away, we might get that little $0.30 to $0.50 cent short-covering rally I've been talking about. From that point forward the bulls are going to need:
#1. A serious South American weather story that not only hurts the full-seaon corn but also further limits the number of second-crop corn bushels being harvested. Low prices are already taking their toll on some of the South American corn acres, but that won't be enough to support an extended corn rally, we need a major weather hiccup of some sort, right now that just doesn't look to be setting up.
#2. We will need some type of unforeseen Chinese demand story to hit the wires. Since they don't appear to have had any major corn production problems, and most sources are thinking the Chinese are going to harvest a new record crop, its hard to imagine a giant jump in imports. There is some speculation that since the Chinese wheat crop ran into such serious production problems this year, they wont have the ability to as easily substitute wheat for corn. Therefore the Chinese "MIGHT" be forced to import more corn bushels than the world original had penciled in. Only time will tell. This is certainly NOT something you want to bet the farm on.
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