Fundamentals Continue to Improve for Corn
Oct 14, 2009
Friday will be 29 days up off of Sept. 9th's $3.052 low which is an important time count. I don’t remember very many bear market rallies over the last several years which have been longer, and we still made new lows, so it’s important for the bears if we start seeing some type of overhead resistance hold. As of today we have seen an .863/4 cent rally off the low for December corn, again by any measure stick for this time of the year it’s been an impressive rally. We have not filled the June 29th gaps at $3.96 but we are close. The momentum indicators are all very overbought. The technical picture is flashing caution for the bulls so this is why we saw some profit talking.
The fundamentals however continue to be improving for corn. The dollar continues to retreat and gold and oil continue to move higher. This has the effect of creating a vacuum which encourage speculators to buy the cheaper commodities. The attitude has shifted from one of potential deflationary pressure to one of potential inflationary pressure like 2008 will develop in 2010.
So for corn to move higher we are going to have to see active buying. This will be seen if we:
- See the administration continue to favor a declining dollar and the Fed continues to allow low interest rates.
- The wet harvest conditions continue and concerns about yield turns into reality and decline below 162 bu. per acre.
- Finally, the administration allows corn ethanol to increase from 10% to at least 13%.
- The Dow stays above 9,500 and concern about banking defaults fades away.
If all of the conditions prevail, I would expect the market to test the overhead December $4.09 gap by expiration. Please note: this is not a forecast but what has to happen for it to happen. Right now I would have to say it’s no better than 30% odds since we have already rallied so much before harvest has even started. As for the downside I have to say there will be stiff resistance at $3.50 and very aggressive buying at the recent $3.27 lows.
Conclusion: a near-term high is close. We should correct a little under harvest pressure but with the growing concern about inflation it will be difficult to get the level of correction feed buyers and hedgers want to buy the market. The old saying “the market normally tries to frustrate most of the market, most of the time” is now alive and well.
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