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Buyers Like Corn, Analyst Says

The bulls will need more news to trade.

Continued support was found today in corn, with active buying seen off and on throughout the day.

There were enough volume spikes to suggest today could have been the third day in a row of fund buying. Active resistance was seen at new highs, but with total volume in the March contract above 220K, there were large enough buy orders to get through some of that resistance. It was mentioned before that it would take active buying in order to push corn to new highs, and that’s exactly what we saw today.

We are at the point where we are left to guess whether this is enough buying to start thinking this buying will become a new trend or if today was finishing buying related to the recent USDA report. Early next week will go far toward answering that question. If continued fund buying is seen, we can continue to expect a slow move higher. If buying slows, some type of technical setback would be expected but still be limited thanks to the recent lowering of carryout.

May corn will roll over to become the lead contract next week, so any new shorter term trades should be placed in May from here on out. New-crop corn reached a high of 399¾, which is just short of the next major resistance expected at 400. Even though corn continues to trend higher, there should be plenty of small setbacks causing this run to be an overall slow grind higher.

Bulls

There was solid volume buying seen again today, which could have been a third day of fund buying.

As of yesterday’s close, open interest had risen by 39K contracts showing that recent buying was new long positions. And that was likely the case today, as well.

Bulls need to see continued large-scale buying to keep a move going to new highs; resistance should continue to be active each penny higher.

Bears

This recent rally makes the chart look like there is a need for a technical setback, but bears will have to make sure funds are on the sidelines first.

Bears could really use some help from either wheat or beans being lower in order to spill over to corn next week.
 

Cattle Commentary

For short-term market direction, over the past two weeks, we have been a little more focused on the charts than fundamentals in the day-to-day. The large gap left from the January 30 open, based on the bearish Jan 27 Cattle on Feed report left an obvious target for a short-term rebound.

It is hard to disparage the chart perspective when the past two weeks have fulfilled gap theory so well. A gap is a missed opportunity to trade in a specific price area. Markets want to try out many prices in order to determine “true value.”

And yes, in the short-term “true value” is always changing based on each day’s set of news and buyer/seller interest. This week was an important one as we filled the gaps in all contracts except April (10¢ remaining). However, after those gaps were filled, the market has set back.

We hammer away at this chart discussion because there is a new issue up ahead, a chart formation that implies a potential top in the market.

The April and June live cattle contracts could have just completed forming the right shoulder of a bearish Head and Shoulders top formation. Any internet search will fill in the blanks if you are unfamiliar. The formation becomes active when the neck line/armpit line is broken. On the April that point is 112.52. The point on the June contract is 103.50. If that support point on the charts is taken out, then the objective becomes 105.20 for the April and 97.20 on June.

Yesterday’s USDA report was slightly bearish. It raised the amount of beef the U.S. consumer will see this year from 56.1 to 56.3 pounds. This would be 1.6% over last year. That would be the largest beef supply for the U.S. consumer since 2013. This would be the largest meat supply offered to the U.S. consumer in 10 years (beef, chicken, pork, turkey).

Cash traded this week at $119 and $120, most were $120. This is steady to $1 higher. We had smaller showlists but at the same time, falling wholesale beef.

We are preparing for a bearish picture up ahead. The up move we just completed was likely the high of the year. Not trying to sound dramatic here, but this is likely your last chance to sell live and feeder cattle for the year.

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Rich Nelson
Allendale Inc.
815-578-6161
This material has been prepared by a sales or trading employee or agent of Allendale Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Allendale’s Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.
 
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