Technically Speaking

Is That a Bear-Flag Chart Pattern on July Corn?

Dana Mantini
By  Dana Mantini , Senior Market Analyst
The chart above is a daily chart of July corn, which appears to be forming a bear-flag chart pattern, suggesting possible lower prices ahead. (DTN ProphetX Chart by Dana Mantini)

JULY CORN FUTURES:

While a good portion of Brazil's safrinha corn crop has been decimated by extreme drought conditions in the past few months and estimates of production are falling dramatically as a result, corn futures have been correcting to the downside. Although it is surely not an exact science, there is a pattern forming on the July corn chart that could lead to even lower prices ahead.

The pattern is called a bear flag and a break under $6.33 could lead to an even sharper sell-off. There is a major support area way down at $5.40 to $5.50. It would seem unlikely corn could plunge more ahead of the growing season and reach these extreme levels, but the funds do remain long and corn is fighting a seasonal pattern of falling prices past June.

In a typical year, that seasonal pattern would see corn prices fall into harvest time beyond June. However, this is not a typical year. Just keep an eye on this pattern, which, if it comes to fruition, could encourage noncommercials to liquidate more of their length. The fundamentals, however, remain clearly bullish.

JULY SOYBEAN OIL FUTURES:

World veg oil markets, following a near-parabolic rise on strong demand and tight stocks, are correcting, including bean oil futures. While July bean oil futures have plunged nearly 6 cents per pound from the high set just a week ago, bullish fundamentals in the soy complex have not changed.

July futures, currently trading around 65.40 cents, will need to find some support at the 61-cent to 62-cent level, or risk breaking down even further. A close under 61 cents could send July reeling to the next support at 55 cents. As in corn, fundamentally such a decline in price is hard to imagine, but funds are still long and the technical outlook appears to be somewhat shaky.

KC JULY WHEAT FUTURES:

Kansas City wheat futures have endured much bearish news in the past few weeks, with good rains moving across hard red winter areas in the western and Southern Plains, followed by the bearish projection from the Kansas Wheat Quality Tour last week. The tour pegged the Kansas yield at 58.1 bushels per acre and pushed Kansas production up to 365 million bushels (mb) from last year's 281 mb.

The Kansas City July wheat chart has fallen over $1.32 just since the double top high on May 7. Momentum indicators are extremely oversold, and an upward correction from here would not be a surprise. There should be solid support another 5 cents to 15 cents below where July is currently trading.

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grain and soybean futures involve substantial risk and are not suitable for everyone.

Dana Mantini can be reached at: dana.mantini@dtn.com

Follow Dana on Twitter @mantini_r

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