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Corn facing 'near oversold levels'

06/24/2013 @ 8:06am

September CBOT corn futures closed lower on Friday, pressured by favorable weather forecasts for the currently growing crop. Cash basis levels were steady to slightly lower on Friday amid a slight increase in farmer selling of stored supplies from last year's harvest. Cash basis refers to the spread between futures and cash corn prices.

However, overall basis levels remain well above normal for this time of year, amid a tight domestic supply situation, and are expected to remain firm until this year's harvest.

Technical selling was seen on Friday for the second session in a row as the corn market failed to hold a midweek pop above key resistance in the $6.06-6.04 region. That zone represents the highs from late March and early June.

The short-lived rally was above that zone, but the subsequent retreat marks that action a "bull trap" and keeps the market on the defensive near term. The 200-day moving average also held firm and remains strong topside resistance at $6.11 1/4 on Friday. September corn has been trading under its 200-day moving average since January and that will remain stiff resistance for the market.

Daily momentum has turned down from near oversold levels. At best, the market will see sideways consolidation in the early part of the week. Short-term resistance comes in at $5.98 1/2 and $6.02 3/4. Short-term support lies at $5.88 1/2 and then $5.84 3/4. If the market were to slide below that latter support zone it would signal a deeper pullback was underway.

  • $6.99 -- the contract high
  • $5.84 1/2 -- the 10-day moving average
  • $5.84 1/2 -- the 20-day moving average
  • $5.74 1/4 -- the 40-day moving average
  • $5.04 -- the contract low

SEPTEMBER CBOT WHEAT, combined pit and electronic trading

September CBOT wheat finished with modest losses Friday after choppy trading action. Wheat traders continue to monitor weather conditions for U.S. and world crops. Rain has delayed the harvest of the U.S. winter wheat crop, but warm and dry weather conditions are forecast over the next two weeks. Additionally, Australia's wheat crop faces a threat from dry conditions, while weather prospects for Europe's crop have improved.

Technically, the September wheat contract is in a short-term consolidative phase. Friday's action saw the second "inside day" in a row as the market coils within even tighter ranges. Very short term resistance lies at $7.18 and very short-term support comes in around $7.01 3/4.

On a slightly larger basis, the September wheat contract remains trapped between important near term resistance at $7.24 and major near term support at $6.82 1/4/6.81 1/2. Those are the pivotal areas that traders should monitor near term and a move above resistance or below support could signal the next trend move. For now, the medium term technical outlook is neutral or sideways.

On the upside, a sustained rally above $7.24 would be bullish and target a retest of the $7.35 1/2 and even the $7.45 zone. On the downside, a strong close under $6.82 1/4/6.81 1/2 would be bearish signal and would open the door for a test of the April 1 low at $6.73 3/4.

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