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Is the Corn Bounce Over?

Published on: 00:50AM Nov 05, 2014

~~TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.      

December corn has been able to rally almost 70 cents off of lows while a record crop is being harvested.  This seems counter intuitive, but corn has found short covering and spill over strength from the soybean and soybean meal market.  Going forward soybeans and soybean meal could have less strength and corn could be left to its own market fundamentals.  What could this mean for corn?  

This is a year where we will set a new record yield and most likely a new record production number in the US.  Harvest delays have caused the pressure of cash sales to be spread out and in the mean time a rally off of the lows in Soybeans has caused short covering in corn.  Lower prices are likely growing demand down here but export sales have suffered in recent weeks.  Lower prices can also mean a drop in planted acreage so corn may have a good reason to rally when we get into planting intentions, but right now lower prices may be needed to continue to stimulate demand.  

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I will be, and have been, one of the first to talk about the bullish potential for corn going forward.  At current prices corn will have a hard time finding the acres needed to keep up with growing demand.  If corn can not by the acres needed then we will need to take every bushel of the projected 2 billion bushel carry over into next year to satisfy demand.  We can not just assume that yields next year will be as good as they were this year.  So, one way or another corn may need to see higher prices at some point to either "buy" acres or put a premium on ending stocks.  On top of this I also think analysts and the USDA are now starting to overshot the mark on yield expectations.  The average trade guess of 175.3 bushels an acre is well above our current estimate and maybe an unrealistic estimate.  Time will tell.  

Even though I can, and do, build a case for corn prices to go higher I also worry that we have gone too far to fast and at the wrong time.  The cash market still has a record crop to digest.  Producers have been slower then expected to sell corn, which can happen during a harvest rally as guys wait for higher prices tomorrow or next week, but lower prices are often a better motivator to sell.  So, lower prices could quickly snowball under the pressure of this record crop coming to market.  Technically corn right now has a V bottom which is pretty rare for a long term base in a high volume market.  

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So, my outlook for corn going into the beginning of next year and into the spring months is pretty good compared to where we were a few weeks ago.  However I am concerned things could get worse before they get better.  This could be a good time to sell some cash corn and get some downside protection on the rest.  With corn prices where they are and where they have been every penny counts.  

Feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.  Also, follow me on twitter @thetedspread if that is your thing.   

December Corn Daily chart:

 

November Soybeans Daily chart:

 

December Wheat Daily chart:

 

All this means that speculators should be looking for opportunities and producers need to look to lock up some prices. Give me a call for some ideas. In particular, producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.

In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!

Ted Seifried (312) 277-0113 or tseifried@zaner.com

Additional charts, studies, and more of my commentary can be found at: http://markethead.com/2.0/free_trial.asp?ap=tseifrie

Futures, options and forex trading is speculative in nature and involves substantial risk of loss.  This commentary should be conveyed as a solicitation for entry into derivitives transactions.  All known news and events have already been factored into the price of the underlying commodities discussed.  The limited risk characteristic of options refers to long options only; and refers to the amount of the loss, which is defined as premium paid on the option(s) plus commissions.

FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STRIKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYING FUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION.