Utterback Analyzes Corn Market

October 29, 2009 07:00 PM

Bob Utterback, Farm Journal Economist

Charts are one of the tools I use to help guide in the timing of when to sell and buy. While any study is merely a guide and not an absolute predictor of future trading activity it does help one to have an indication of possible patterns to watch for.
Current harvest problems are forcing us to go back several years to get any type of comparison. The year I would like to draw your attention to is the fall of 1974. This was a year when we had a delayed spring and early frost and the moisture level in corn was high. The only difference is in 1974 it was a rather warm October and November while for many production areas it has been an unusually wet September and October this year. One observation I would like to draw your attention to is the harvest completion rate. On the market highs in October, harvest was only 22% done comparable with current numbers for 2009. The market was able to stay reasonably firm until the crop was in the bin. On Nov 10th, harvest was reported at 70% done.
Implication: Once harvest was almost complete and the crop was in the bin, the supply bull ran out of juice.

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In regard to this year, I would not be surprised if corn harvest rates show no more than 25% completion by this weekend. Since we are moving into November, the number of drying days is not going to be good. For many producers the moisture levels in the corn harvested is high; add to this the ability to dry crops down would suggest it will take close to 5 to 6 weeks to get the harvest 70% completed. This raises the question [when comparing 1974 to current chart action], was the high in August which was the expected high before the frost or in October? My bias is the high is now in unless outside factors explode which relates to the equity markets, the US dollar and crude oil.
Another observation I would draw your attention to is the solid red 21-day moving average and the 50-day moving average. While the 21-day was good for really quick entry and exit, the 50-day moving average was the powerhouse to watch. If we focus on the action "gaps” that were made on the way up, they prove to be very important support levels on the way down. The October break below $3.75 took out the previous gap made back in September plus closing below the 50-day moving average was the give up signal for all the bulls and the sell signal for the bears. I have to suggest such a pattern should be given strong consideration in the current charts.
If you take the chart analysis to its conclusion, it suggests a very bearish time period once the bin doors shut. I believe the high moisture levels and need to harvest will motivate producers to put grain in the bins far higher than they should. Since it will take a draw down in moisture below 15% to stop the growth of mold and disease, I would suggest many producers will be forced to dump inventory before the temperature starts to warm up in March. With potential discounts and wide basis, producers could receive or match the early September lows so caution is strongly recommended.
December 2009 Corn has now corrected [down] dangerously close to the 21-day moving average and the uptrending 45-degree support line off the previous lows in this drive adds to this a 50% retracement of the entire $1.06 rally at $3.58, along with end of month evening up by the funds plus rather big rains over the Midwest over the next two days we should be at the end of the current correction. The question becomes what type of bounce?

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I believe we can argue for price recovery as long as harvest percentage is below 60%, but as these levels are achieved one has to start moving from a short-term bull looking for price recovery to long-term bear looking for selling opportunities for the late December to February cash price sell off potential.
Outside markets have had tremendous impact on the grains along with concern about inflation and general positive attitude by outside markets to buy all commodities. To get really bullish corn for a breakout of the $4.10 level we will need to see the Dow well above 10,000 and looking like it's going hard after its 12,000 objective. We will need the US dollar retreating and trying to make new lows and crude oil holding firm. As you can see, I have placed several lead month charts for your consideration.

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The US Dollar Index is being watched very closely right now. It recently bounced with a lot of other countries starting to support their currency in regards to the US dollar. The simple fact many parts of the world are growing much faster than the U.S. and are actually moving the opposite direction of the U.S. to come out of the recession; i.e., cutting taxes, promoting business growth and reigning in government expenses. How has the mighty US dollar fallen being the premier world currency to one that many are looking elsewhere to put reserves. If the US dollar would retest recent lows and move down to the 72 target objective, it would intensify concerns about inflation.

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Read more of Utterback's thoughts on his blog, Outlook Today.

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