Featured below is an article from the VantagePoint Strategies Newsletter. The author, Darrell Jobman, is Editor-in-Chief of TraderPlanet.com. Darrell has been writing about the financial markets for over 35 years, and was an editor for Futures Magazine for over 15 years. He has also written and/or edited multiple books on trading, and has a passion for helping other traders succeed.
Experienced traders realize the value of Synergistic Market Analysis, a term coined by VantagePoint developer Louis Mendelsohn that combines fundamentals, chart patterns and intermarket analysis as an approach to making a trading decision.
Fundamentals are the driving force for prices, and charts only reflect their effect on prices. Corn provides a good example. Let’s start with traditional chart analysis by looking at the big picture for December corn futures first.
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for grains go here!
The red circles indicate the highs a year ago around $7 a bushel and the lows last December around $3.50 after corn futures had lost half of their value from the 2008 peak. The red dashed line marks the early January high around $4.75, which provided significant resistance in June as prices turned back from that point. The $3.75-$4 area formed a solid support base (red rectangle). So, with $7 corn unlikely to be seen again any time soon, the parameters for December corn futures prices became $3.75 on the downside and $4.75 on the upside. A breakout either way would set the next price trend. With Tuesday’s limit down move, it seems to be to the downside.
That’s the big chart picture. Now let’s get to the current outlook.
Corn traders were well aware of the heavy rains and wet conditions that delayed corn planting in the eastern Corn Belt this spring, concluding that the actual area planted to corn would likely be somewhat less than the 85 million acres indicated in the U.S. Department of Agriculture (USDA) March 31 planting intentions report as farmers shifted from corn to soybeans. A VantagePoint predicted moving average crossover provided a clear buy indication for December corn futures around $4 a bushel in late April (left circle on chart below), and traders worried about a short crop ran prices up to that $4.75 resistance area by early June.
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for grains go here!
Then, as weather turned more favorable in June and planting was actually accomplished, the predicted medium-term moving average (blue line) dropped below the actual medium-term moving average (black line) for a downside crossover that turned into a clear downtrend, sending prices from the $4.75 area right back down to test the earlier lows in the $3.75-$4 support zone.
Going into Tuesday’s USDA report of actual planted acres, the December corn futures chart above showed some signs of being able to bounce back from the previous lows as VantagePoint’s predicted moving average differences were pointing upward (red arrow).
But here is where fundamentals rule. When USDA reported that 87 million acres of corn had actually been planted this year – 2 million more than indicated in March and about 3 million more than the average trade guess – it was a bearish shocker that sent prices limit down. No trading strategy or trading system could have anticipated such a surprise.
The lesson learned again is that, no matter how convinced you may be about a position, never underestimate the power of a report (or some other development) to cause an opposite price reaction. Even if you are right, as traders who remained short using VantagePoint’s moving average indicators were in this case, it’s risky to ride a position through a major report.
Are the Tuesday planted acreage numbers the final word that could send corn prices below that $3.50 low from last December? Far from it. The acreage surveys were completed June 15 before millions of acres were planted so can’t account for what farmers actually did plant. Acreage revisions in the July 10 USDA crop report would not be a surprise. It’s also likely that the lateness of planting in key states like Illinois and Indiana will make it difficult for corn to reach trendline yields – that is, more acres does not guarantee more production.
Then, there is always the summer weather, which often provides some kind of scare during the upcoming July 4 period. But with planting so spread out, the critical pollination period for corn will also be spread out, perhaps reducing the impact a hot spell might have on the crop.
In addition to the planted acre bearish surprise, corn stocks as of June 1 also were 76 million bushels higher than traders estimated, hinting that usage during the first half of the crop year may have been less than expected. Getting into intermarket analysis, the chart of August hog futures below suggests one reason why.
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for meats go here!
December hog futures prices have plunged 25% from April to June, and prices that were at $75 a cwt. a year ago have sunk below $55. Pork belly futures have dropped even further as pork carcass prices are at multi-year lows. Cattle futures prices have fallen 25% since last August’s highs. Livestock futures prices can be volatile and could rebound sharply, but producers are not likely to maintain animal numbers if prices remain low.
USDA’s hogs and pigs report Friday didn’t reveal as much of a decline in numbers as expected, but hog prices have fallen $5-$8 since June 1 when the report was compiled. Anecdotal reports indicate sow slaughter has picked up since then, and milk producers are also reported to be thinning or liquidating their dairy herds.
Feed and residual accounts for about 45% of corn consumption annually, and these animal cutbacks could erode the biggest demand base for grains, adding bearish pressure for corn prices.
In addition, the enthusiasm for ethanol produced from corn seems to be waning even as global warming and going green get more attention. Ethanol has accounted for a big chunk of corn usage in recent years and will continue to do so, but those concerned about using corn as fuel and not as food may put a damper on ethanol as an energy solution, a potential longer-term bearish influence.
