Friday, September 28, 2012
Hedge selling pressure and weak U.S. exports have taken the steam out of the major bull market in Corn futures. However, with the market starting to look a bit oversold, a short-covering bounce would not be out of the question after the USDA report is released.
Many traders' holding long positions in Corn futures continue to head to the exits, as this historic bull market is starting to show signs of stress. Since contract highs were made back in mid-August, lead month December Corn futures have tumbled over $1 per bushel, as U.S. export business has dried up due to high prices. On Thursday, the USDA announced that Weekly Corn exports for the week ending September 20th totaled only 400 metric tons. This was well below the forecast for around 200,000 metric tons and appears to be a sign that foreign buyers are finding other sources for their Corn purchases, such as Brazil, or that they have enough supplies on hand to wait for Corn prices to come down. Domestically, reduced herd sizes for Cattle and Hogs are expected to reduce U.S. feed demand, which is also a factor weighing on Corn prices. Some traders noted long liquidation selling by commodity funds the past few sessions, as traders begin to lighten-up on their positions ahead of the USDA quarterly grain stocks report scheduled to be released this morning. Many analysts are expecting the USDA to report U.S. Corn inventories as of September 1st total around 1.10 billion bushels, though the range of estimates has varied. The wild card is how much new-crop Corn will be included in old crop supply estimates, as an early start to the harvest has seen over 1 billion bushels of recently harvested corn already in the bins. The early start to the harvest has also caused increased hedge selling to occur, especially with some producers looking to lock-in still attractive prices. Going into 2013, we still see U.S. Corn supplies becoming tight, and many producers with on-farm storage are deciding to store newly harvested Corn in anticipation of higher cash prices in the first quarter of 2013 prior to the new-crop South American Corn harvest.
Looking at the daily chart for December Corn, we notice prices closing just below the 38.2% Fibonacci retracement level drawn from the June 15th lows to the August 10 contract highs. This sets the stage for a test of the 50% retracement near the 678.00 price level. Chart technicians will note what appears to be a rounded-top formation that could signal a major high in the Corn market has been made. However, before calling a major top in the market, we would need to see prices close below the 200-day moving average, currently about 80 cents away. The 14-day RSI is approaching oversold levels, with a current reading of 30.80. With support seen at 678.00, we find chart resistance at the 20-day moving average, currently near the 768.00 price area.
Mike Zarembski, Senior Commodity Analyst