Wednesday, May 1, 2013
Commodity funds and small speculators appear to have turned bearish on Corn futures, as the outlook for a potential record harvest seemed to portend lower prices this fall. However, experienced grain traders will note that weather related rallies are not uncommon every season, and this year's slow start to Corn plantings is amplified from tighter old-crop inventories after last season's drought. Monday's limit move in old-crop months may have been tied to short-covering by speculators, especially after near-term chart resistance levels failed to hold.
The Corn futures market received a jolt to end the month of April, as a cold and wet spring in the eastern and central parts of the Corn Belt has sparked fears of late plantings and possible acreage losses, which triggered a limit-up move in nearby futures prices. As of April 28th, the USDA reported that only 5% of the U.S. Corn crop had been planted, compared to nearly 50% last year. The key Corn producing states of Iowa and Illinois were 2% and 1% planted respectively, versus 36% average for the past 5 years. Weather forecasts are calling for more rainfall in the coming days, with the potential for an additional 3 to 5 inches seen in Iowa, Eastern Nebraska and Western Illinois, which will further delay planting in these important Corn producing states. However, this increased moisture should help to elevate some of the lingering dry conditions in the western areas of the Corn Belt, which has been mired in a moderate to severe drought. Though Corn plantings are at their lowest levels in nearly 30 years for this time of year, what really seems to "make or break" Corn production is weather conditions during July and early August. So if Mother Nature does not send a repeat of last year's severe drought, there is still room for above average yields, despite a late start to the Corn crop.
Looking at the daily chart for December Corn, we note the two-day rally in prices which added nearly 50-cents to new-crop prices before a late session sell-off on Tuesday capped the up-move. Some of this late selling may have occurred once it appeared that prices would not reach recent highs near 575.00. Corn momentum has moved from near oversold levels earlier in April to a more neutral reading of 56.39 on the 14-day RSI. The high made on March 27th of 573.75 looks to be the next resistance level for December Corn, with support found at the 20-day moving average, currently near the 539.50 price level.
Mike Zarembski, Senior Commodity Analyst