Rain, Greenback Have Corn Reeling
Fundamentals
Corn futures continue to push lower, trading down to the lowest levels since October of last year. Traders are citing ample rainfall across much of the Corn Belt, which could result in higher output than last year's large crop. Also China, the largest importer of US grain, has seen its growing conditions improve, leading many to believe that export demand could decline. In addition to the market largely being seen as more than adequately supplied, Corn has faced plenty of selling pressure due to external market forces. The weakness in energy and commodity prices coupled with a stronger US Dollar has exerted a negative effect on grain prices. Given all the financial turmoil engulfing the globe, especially in Europe, some traders may continue their flight to quality, which is likely good news for the Dollar and bad news for commodity prices. The million dollar question facing Corn traders at the moment is whether the recent sharp selling will lead to value buying. If the answer is no, then the road ahead could be a rocky one for Corn prices.
Trading Ideas
It looks as though both market fundamentals and technicals continue to face south for the Corn market. Prices are really at the mercy of external market forces, barring a major shift in growing conditions, suggesting prices will continue to take their cue from the greenback and investors' appetites for risk. Given the state of Europe at the moment, this seems to favor the downside. Some traders may wish to take a short position in the July Corn futures contract at 335 or better, with a protective stop at 355 and a downside target of 300. The trade risks roughly $1,000 for a potential profit of $1750.
Technicals
Turning to the chart, we see the July Corn contract breaking-out to the downside, below support near 350. This suggests that prices could make a run at the major support level at 300. The 300 level has proven to be the new 200 level for Corn in recent years - a basement if you will. Corn prices have held this level, suggesting a downside breakout below 300 may result in unpredictable price action. The recent wave of selling has led to oversold conditions on the RSI indicator, which could provide some much needed support for prices.
Robert Kurzatkowski, Trading Specialist
