Has corn topped?
This week, corn futures have faltered for the first time in 2 1/2 months, showing real signs of weakness after closing below the 21-day moving average, a level that has held since mid-September.
Is a top in? Is this a correction? What is the long-term outlook? These are all questions being asked on a daily basis. We'll address both the short and long-term technical picture and tie that into fundamentals.
First, one could argue that the corn market has been over-valued as prices have seen minimal setbacks. Corn futures, except for one time in the last 2 1/2 months, have not closed down 3 consecutive days. That tells us that buyers are willing to jump in after one or two down sessions. However, this week prices did slip through the support of the 21-day moving average.
What does this mean? Maybe nothing...maybe a lot. If prices are able to close below the average for the last three weeks, it suggests the momentum to push prices higher may be lacking in the near-term and possibly the long-term. However, most markets make corrections or consolidate in uptrends. The bullish argument is that the recent setback of about 25 cents in most futures contracts is nothing more than a correction as prices experience profit-taking and hedge pressure, as well as the lack of new positive news to continue to drive prices upward.
Using the March corn futures, the first area of support from current values, $3.72 1/2 as of this writing, indicates the 40-day moving average at $3.57. This also coincides with an area where prices consolidated for nearly two weeks in late October and early November. This area holds above a gap from November 1 at $3.47-1/2 up to $3.54-1/2. If prices slip through this level, then look for the move to the 50-day moving average near $3.43. Quite often, traders will look at percentage corrections. A 38% retracement suggests a correction to $3.39.
Fundamentally, news to provide direction for prices is usually lacking in December. Thus, prices usually drift, especially into the holidays. The long-term demand picture suggests that prices may move upward into the winter months. Using gap theory on the March corn, one more gap up would give the market an upside objective of over $4.50 March.
It will likely take additional fund buying or concerns that weather could be a problem in the year ahead in order for this to occur. The other wildcard would be that farmers are not switching as many acres as anticipated. We doubt this. The long-term picture will depend on summer weather. If corn acres increase 6 to 10 million, a yield near 160 bushels per acre suggests increasing carryout.
Charts can be extremely helpful when trying to determine trigger points to have a strategic plan. If following the market upward with stops, don't cancel them on signs of weakness. This is often a major mistake. Be disciplined, know your marketing tools, and stick with strategy.
If you have questions, comments or would like a strategy developed for your operation, please contact Top Farmer at 1-800-TOP-FARM, ext. 129.