Technically Speaking

Dec Corn Daily Chart: At a Crossroads

By Darin Newsom , DTN Senior Analyst
Source: DTN ProphetX

A look at the daily December corn chart shows a market that is unsure of its future direction. This opens the door for reaction to Wednesday's USDA June Crop Production report to set the trend of the market for the short-term. From a technical analysis point of view, this is a bitter pill to take since its main tenet is that fundamentals are already built into price.

Recall the posts on soybeans from last week. On Monday I discussed signals on the November weekly chart followed by Tuesday's look at the November daily. If you remember, the two charts showed two different trends in place, with the minor (daily) turning down while the secondary (weekly) holding in an uptrend. The same can be said for corn early Wednesday morning.

Daily stochastics (bottom study) shows December corn to be in a minor (short-term) downtrend. The contract has tested support at $5.42 3/4, a price that marks the 50% retracement level of the uptrend from $5.12 through the high of $5.73, four of the last five trading sessions. Yet, daily stochastics remain bearish with the last signal a bearish crossover (faster moving blue line crossing below the slower moving red line) on June 3, in conjunction with the key bearish reversal (the December contract traded above the previous day's high, below the previous day's low, and closed lower for the day) posted on the daily chart (upper chart).

If signals on daily charts are to be believed, the reaction to Wednesday's report should be bearish. The contract is holding below resistance near $5.52 1/2, a price that marks the 38.2% retracement level of the initial selloff from $5.73 1/2 through the double-bottom low near $5.39 1/2. If a bearish breakdown is seen, a simple measuring device could indicate how far the contract might fall.

Using the double-bottom low near $5.39 1/2 (June 6 and June 10) and the interim high of $5.59 3/4 (June 7) gives us a range of 20 1/4 cents. Subtracting that from the low end of the range ($5.39 1/2) puts the target at $5.19 1/4, a price that is well below retracement support between $5.35 1/2 and $5.32 1/2 and equal to the low from May 22 (dashed blue line). On the other hand, a move above the previous high could set the stage for a rally to a new high of $5.80 ($5.59 3/4 plus the 20 1/4 cents).

The secondary (intermediate-term) weekly chart (not shown) indicates something different. The trend on the weekly chart for December corn remains up, with initial resistance near $5.70 1/2 and secondary resistance at $5.88 1/2. The latter would seem to be in line with the possible bullish breakout mentioned in the discussion of the daily chart.

Either way, the latter stages of Wednesday's session, post report, should prove to be interesting.

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RANDY LIPOVSKY 6/18/2013 | 12:46 AM CDT
i agree
Freeport IL 6/14/2013 | 11:20 AM CDT
Our bullish theme for corn depends on hard red wheat (spring and winter). We would not be surprised to see both corn and wheat stocks below USDA's current projections in the June 28th report. A lower corn stocks may not have as much punch for higher prices in new crop. This is because of the perceived increase in production versus weak use - especially exports. (USDA is being very kind with foreign corn demand. Our corn exports could be as weak as advertised.) (We think USDA will be conservative with production estimates. There will be a lot of growing season remaining and planted acres will need to be resurveyed. The corn's crop rating, more than likely, will point to production levels before USDA prints a representative number. Nitrogen issues could start being reflected in the upcoming corn condition reports.) The issue with hard red winter wheat (HRWW) will be harvested acres not yield. The level of abandonment could be large. This is where production will be lost. The acres that are harvest will have respectable yields. Current WASDE estimates have total foreign wheat production at trend line with foreign domestic use below trend line. These estimates points to the US exporting 975 million bushels of all wheat. A normal distribution of export would indicate around 390 million bushels of HRWW would be exported to meet the World's needs. Our balance sheet, at this level of export, would result in record tight ending stocks for HRWW. Normally we would expect a decline in feed and residual use to free up some supply. It does not appear, with current price spreads between corn and wheat, the tight old crop corn supply and late harvested new crop corn, like this will happen. Hard red spring wheat (HRSW) is a substitute for HRWW. The current planting pace of the spring crop points to a decline of something like 1.1million planted acres from USDA's March estimate. The tightness of HRSW's balance sheet (even with reduced planted acres) is dependent upon wheat production in the Canadian Prairies. USDA current is expecting 29 MMT, a 6.5% increase in the Canadian production over last year (27.2 MMT). Canadian production below last year may be needed to see a tight stock situation in US HRSW. (US durum stock could also end up being very tight depending on Canadian durum production.) The tight wheat stocks will move wheat prices higher pulling corn along. Our model indicates new crop corn production could be low enough to move prices on its own. The price move on corn's balance sheet could be mild because demand (mainly exports and overstated Feed & Residual) does not appear to be there to justify a stronger move. The concern for wheat's production should occur, if it happens at all, before the trade/USDA acknowledges the tightness of corn, if it happens at all. The situation with wheat could be the first step in corn prices moving higher. A tight wheat position might enhance corn's price prospects. Wheat stocks below 710 million bushel could indicate heavy wheat feeding in the 4th quarter of wheat old crop year. Freeport, IL
DARIN NEWSOM 6/12/2013 | 12:53 PM CDT
Update: It is interesting to note that the Dec corn contract moved lower following the release of the June crop production report, falling to a low of $5.32 1/4. Take another look at the daily chart. This was nothing more than a test of theh 67% retracement level discussed earlier. After hitting this support the contract posted a modest rally.