Frosts Bring Hope for Corn Bulls
Fundamentals
Corn futures are higher for the seventh time in eight sessions, on concerns that frost across much of the Midwest may contribute to lower than expected production. Extended periods of frost could potentially have a negative impact on immature Corn stalks going into the harvest. Traders, however, may question whether this recent rally has been a result of short-covering, and if the inclement weather will be able to reduce the crop size by a large enough figure to really have an impact on prices over the long haul. It certainly appears as though the bull camp wants to take the football and run with it at this point. The 75 cent rebound from recent lows has resulted in heavy farmer selling, increasing the current supply of Corn on the market. Yet, it is unknown if physical buyers will be able to keep pace in the near-term, which could result in prices correcting. Like the broad commodity market, Corn has benefited from a much weaker US Dollar. The Dollar Index is quickly approaching the pivotal support area at 76.00. This can be seen as a "make or break" level for the DXZ9, where the greenback could weaken considerably if this level is violated.
Trading Ideas
Longs have found validation from both fundamentals and technicals, but the market may be a bit overheated. This suggests that some traders may wish to sit this one out for the time being, and see how the December Corn contract behaves once prices approach the 400 level. Some more aggressive traders may possibly wish to consider selling the December Corn contract at 400, with a protective stop at 430 and a downside objective of 360. The trade risks roughly $1,500 for a potential profit of $2,000.
Technicals
The December Corn chart shows the market quickly heading toward the 400 mark, which is the next area of significant resistance, after breaking through minor resistance at 369. The combination of overbought conditions on the RSI and the major technical and psychological resistance at 400 could result in heavy profit-taking from longs. The Corn market has not seen a meaningful correction since the rally picked up steam in mid-September, suggesting the market may be ripe for some consolidation or, possibly, a small correction.
Rob Kurzatkowski, Senior Commodity Analyst
