Will Harvest Pressure End the Corn Rally?
Corn futures have been upstaged this year by the surging Wheat and Soybean markets, even as U.S. producers did their jobs and produced a near-record Corn crop to meet the demands from both the ethanol and livestock industries. However, December Corn hit a three-month high yesterday, as speculative buying – most notably by commodity funds – has helped to break Corn futures out of their bearish posture. There is some talk among traders that Corn acreage will be lower next season as producers look to take advantage of relatively high Wheat and Soybean prices in 2008 and dedicate more acres to those crops. This is beginning to be played out in the December 2008 contract, where prices are well above $4 per bushel as Corn fights to retain acres from competing grains. Near-term, traders should keep an eye on hedge selling on any rallies in December 2007 Corn, as the U.S. harvest continues. The USDA reported that 22% of the U.S. Corn crop was harvested versus only 12% last year, and 80% of the crop was rated as mature, well above the five-year average of 65%. Among the largest Corn-producing states, Illinois reported 46% of its crop harvested versus 13% last year, Iowa had only 7% harvested, and Minnesota only 9%. Though both of these states were still above the five-year averages, the size of this year’s crop is so large that harvest pressure will continue to be a serious factor on Corn prices as they continue to harvest the crop.
Looking at the daily chart for December 2007 Corn futures, we notice yesterday’s rally above $3.80 was met with strong selling pressure which forced Corn prices to end the session on a down note. Some moderate selling continued in the overnight session as well. However, Corn continues to hold above the 100-day moving average, which is a bullish sign for momentum traders. Commodity funds are holding a large net-long position in Corn futures, with the most recent Commitment of Traders report showing these large speculators net-long 164,457 contracts as of 9/18. Small speculators are net-short 114,240 contracts, which may add fuel to the bull run, especially if buy stops are triggered should December Corn trade above resistance at Monday’s highs of $3.80 ½. Support is seen at the 100-day moving average, currently at $3.62 ¼. At the end of the overnight session, December Corn was trading at $3.72, down 1 ½ cents.
Mike Zarembski, Senior Commodity Analyst
