Corn Calamity
Fundamentals
Corn futures continue to tumble on ideal growing conditions and large crop size. Last week's USDA report showed that planted acreage is at the second highest level since 1946. There was some concern that the crop yields could be affected by late plantings this spring, even in the event that planted acres were larger than expected. Those concerns have been washed away by a steady mix of rain and sun at a time when the crop was most vulnerable. Ethanol production numbers have also put pressure on Corn prices, with the EIA reporting April production falling about 40 million bushels below USDA estimates. May and June figures may show increased production due to favorable margins resulting from higher Crude Oil prices. Crude Oil prices, however, have come under pressure recently, dropping more than $9 from recent highs, which may slow ethanol production. Motor fuel demand has remained lackluster at best, suggesting ethanol usage may remain flat. Declining open interest suggests heavy fund and speculative selling, which could put further pressure on the market. The December contract has broken its December lows in overnight trading and it will be interesting to see what the day session brings.
Trading Ideas
The extremely bearish fundamental and technical outlooks for the Corn market could suggest that some traders may possibly wish to be short the market. The extremely oversold conditions and volatility of the commodity markets may prompt other traders to forego the futures market in favor of options. An example of an options trade some traders may wish to consider would be to purchase a September Corn 320 put for a premium of 9.000, or $450, with an exit price target of 25.000, or $1250.
Technicals
The continuous Corn chart shows prices breaking down below April lows of 360.50 and testing February lows of 348.00. The new crop December contract has broken its respective lows, but old crop futures have maintained these levels. If the market is unable to hold 348, the next significant support level comes in at the 300 market, which is both technical and psychological support. To avert a catastrophic breakdown leading to multi-year lows, the front month September contract must remain above the 300 mark. The daily September chart shows the slow stochastics in the low single digits and the RSI at 11.20, indicating extremely oversold conditions, which could support prices in the near-term.
Rob Kurzatkowski, Senior Commodity Analyst
