Technically Speaking

Dec Corn Testing Support

Source: DTN ProphetX

Spillover selling from the old-crop corn market led to the establishment of a bearish outside week in the new-crop December contract last week. After trading above the previous week’s high of $5.69 3/4 Thursday’s post-report sell-off saw the contract fall well below the previous week’s low of $5.56, closing near its weekly low at $5.38 1/2. The contract continued its downturn to start this week, quickly testing longer-term support near $5.31 1/2, a price that marks the 50% retracement level of the previous uptrend from the contract low of $3.98 1/4 through the contract high of $6.65.

With traders seemingly throwing in the towel on the old-crop market following the release of the quarterly stocks number last Thursday, attention will now turn to the new-crop market. Weather will move to the forefront, meaning projected supply and demand should set the tone for market direction over the next few months. Seasonally the December corn contract tends to rally 12% from the weekly close at the end of March through the last weekly close in August.

But are there technical indicators that show December corn could soon find renewed buying interest? As stated above, the contract is testing support at its 50% retracement level. Also, weekly stochastics (third study) show December corn is sharply oversold with both the faster moving blue line and slower moving red line not only below the oversold level of 20%, but in single-digits as well. This normally indicates the contract could see a bullish turn, though increased volatility (bottom study) could limit noncommercial buying interest.

As for the market’s view of supply and demand, reflected by the trend of the December to March futures spread (second study, green line), it remains neutral. The trend is sideways, trading at about 9 3/4 cents early Monday morning, reflecting approximately 50% of full commercial carry (the total cost of storage and interest to hold the commodity in commercial storage). This neutral view of new-crop supply and demand would seem to confirm the idea that the 50% retracement level should hold the sell-off in the futures market.

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4/1/2013 | 9:02 AM CDT
Good question Roger. I do not know the answer off hand but will see what I can find out. The general consensus seems to be that there has not been a great deal of forward contracting. I may pose the question to DTN Market Editor Katie Micik for her Market Matters blog.
Roger Cooper
4/1/2013 | 7:32 AM CDT
Do we actually know how many total bushels of 2013/2014 corn are on the books (purchased) to date? And what percentage of the new crop those purchases represent?