The corn market has caught the attention of traders as we head into harvest, given late planting in some key growing areas. I see a divergence between what fundamentals dictate and the market’s recent price action, however, and feel a rally might be short-lived. The trade has been dominated by concern over yields, and weather has been an issue, coming in generally cooler for the 11 – 15 day outlook. There is concern about yields, which has spurred a rally in corn, but so far they appear strong, and we haven’t had threat of frost.
On Monday, September 28, CME Group December corn futures ended up 4 3/4 cents, to $3.38 3/4 per bushel, and March corn futures ended up 4 1/2 cents, to $3.51 1/4.
The USDA Crop Progress report, which came out Monday afternoon, showed corn conditions unchanged at 68 percent good-to-excellent. The corn crop is 37 percent mature and 6 percent harvested, behind normal averages.
The USDA Crop Production report will be released Friday, October 9 at 7:30 a.m., but there will be two private reports out before then. The quarterly grain stocks report is due out on Wednesday, September 30, and forecasters are expecting a higher figure than last year. Corn stocks are seen at 1.719 billion bushels. Thursday we also have export sales, which will be worth watching if you trade this market.
We’ve seen a bit of an increase in foreign demand, which has given support to the market. We’ve seen interest in corn and other related new-crop agricultural markets from countries including China, Taiwan and Iraq, which should give spillover support to December corn. On Monday, the U.S. Grains Council on Monday gave its projection of China’s corn crop at 148.8 million metric tons, down 9.7 percent from last year. Drought conditions have affected the market there.
There is certainly a lot of concern about the U.S. supply as we approach the North American harvest season. We had a story of two areas: the eastern and western corn belts. I am looking at yields very closely, and while the eastern corn belt has seen lower yields due to late planting, we are seeing better yields on the Western corn belt, which experienced a more normal season. It looks as if overall, we will have excess supply. Reports from the fields confirm that although harvest is starting late, yields are looking very strong. That isn’t directly showing up in price action, as the market has been trending higher.
The Commodity Futures Trading Commission’s latest Commitments of Traders report showed the funds, which are essentially ETFs, index funds and managed pools, are net long a sizeable amount of corn futures. The small speculators are at an extreme net short level. As of September 22, they were net short 135,000 contracts, one of the largest bearish positions held by this group in recent record.
So, we have what looks to be a bearish situation from a fundamental standpoint, but in the short-term we’ve had some rallies in corn, and the technical action is rather bullish in the short-to-medium term. With the big fund participants net long, they might be trying to push the market up a bit before key market reports come out. As smaller traders look to get out on the move before key reports, we might see a further rally.
Coming into the next USDA report as well as private reports this week, if December corn breaks though $3.40, I see $3.50 as the next resistance. There is a good chance we could see the weak hands (small specs) get flushed out, and the rally could extend to $3.70 or even maybe $3.90.
As mentioned, I think longer-term fundamentals don’t support a big upward move, so a rally may be a flash in the pan. I recommend traders look at $3.70 as a possible near-term upside target, which could mark a top. Look to establish a short position there, with a stop.
I am more bullish corn over the next product cycle (new-crop corn) as I feel we still have some potential factors that could be supportive. There are political issues that make it difficult to put a price target, but the U.S. dollar is a factor worth paying attention to. A weak U.S. dollar is supportive of commodities in general as it allows foreign interests to purchase our product more cheaply, and participants will be watching to the dollar to see if the price is right to buy and store grain.
Please contact me to develop a customized strategy to fit your unique situation. I’d be happy to take your questions about this or other markets.
Dennis Cajigas is a Senior Market Strategist with Lind Plus, Lind-Waldock’s broker-assisted division. He can be reached at 866-631-6216 or via email at dcajigas@lind-waldock.com.
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