12-07-2009: March Corn: Farmers Prefer to Store Dry Corn
Corn is beginning to slip back into previous price ranges as the demand for ethanol relinquishes itself and farmers place less animals on feed. Crops are growing relatively well and foreign demand has slackened off. There are some who say the future for grains is far from over, Jim Rogers for one, but what we think we see has been a steady deterioration in corn prices. The rate of deterioration is slowing, however. One very supportive factor is the difficulty in storing wet corn. As more rain reaches the corn belt, farmers may delay harvests preferring to leave corn standing in the fields than to try to pay for expensive drying processes to make it ready for storage. This suggests to us a possible safe trading range for the near future.
March Corn:
March Corn:
There has been a lot of fund selling of corn contracts in the last three days. Favorable harvest weather and stepped up farmer selling are the dominant factors. Dry weather is expected to last into next weekend albeit with a few snow flurries. The heaviest amounts of rain will be along the southern half of the midwest creeping from west to east. Harvesting corn that contains too much moisture raises a host of quality issues including the expense of drying the crop and a loss of yield. So farmers are debating holding off on harvesting until drier weather emerges. Storing corn with higher moisture may cause selling it at a discount later on. Some farmers may leave crops in the field as late as next Spring. This causes weekly harvest figures to be lower than otherwise. Export sales of corn in the latest week ard down 50% from the previous week at just 659,000 tonnes. Cumulative corn sales as of November 26th stood at just 38.6% of the USDA forecast for 2009/10. The five-year average at that time is 45.3%. Sales need to average 822,000 tonnes each week to reach the USDA forecast. China says it will stop making subsidy payments to corn processors if prices rise above a certain level. Domestic feed demand for corn is weak of late. Farmers are steady sellers of cattle. On November 10th the USDA reduced its estimate of 2009/10 ending stocks from 1.672 billion to 1.625 billion bushels, down slightly from the previous year. That put the 2010 ending stocks to use ratio at 13%. The USDA is looking for 2009/10 exports to be up 13% and so far they are only up 5%. On November 30th the USDA said 79% of the corn crop was harvested. China's corn crop is estimated at 149 million tons versus 166 million tons a year ago. Severe drought conditions are affecting China's corn crop. Less acreage was devoted to corn this year because of falling prices and less ethanol demand.
515.0I T 12/ 4
I CBT - Mar-10 Corn, 5000 bu., c/bu. Cm.=0.60 Lim.= 6.0
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The above point-and-figure chart is giving a conventional buy signal.
We are headed toward a cyclical low and a seasonal up period.
Our best-performing internal program is "Pattern." It is giving a sell signal.
Results of "Pattern" for Corn (blue lines = successful trades, red, unsuccessful): (Always in the market.)
Our third system has triggered a buy signal. (Note, disregard the year date on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)
The point value is $50. Initial margin on a single contract is $3,038. Use of options is advised.
Scale traders are not a factor in this price range.
In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Red is small speculators. Green is large speculators. Blue is commercials. Large speculators with the best track record are getting increasingly-long.
The average volatility shown below suggests that the major up direction remains intact from the last volatility low point.
Our option trade recommendation is to sell the Corn May 380 Call @ 42-7/8 or better.
What the Mar. - Jul. calendar spread suggests to us is that buying the near contract and selling the far one is at most times mixed, which we think is a sign that these futures may be flat for some time to come. The best time to enter or leave the above spread is when it is at -14.00 or narrower selling the near as prices are falling and then buying the far, and exiting or entering when it is at -16.00 or wider buying the near as prices are rising and then sellling the far.
Here's an intraday chart for the previous day ( 12/04 ).
Risk Versus Opportunity Report
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CH0 March Corn
High Price: 413.5
Current Price: 388.5
Low Price: 336.5
Risk: -0.133
Opportunity: -0.277
(O/R) Ratio = 2.080
Level Table:
| Factors | Weighted Points |
|---|---|
| Parabolic Chart | - 1 |
| Nirvana Chart | - 1 |
| News | - 1 |
| Point & Figure | - 1 |
| Cyclicals | - 1 |
| Seasonals | + 1 |
| Internal System 1 | - 1 |
| Internal System 2 | 0 |
| Third System | + 1 |
| Commitment of Traders | + 1 |
| Historic Range | 0 |
| Range/Volatility | + 1 |
| Level Table | - 1 |
| Other Factors | - 1 |
| Total | - 4 |
Place 9 March Corn on a Sell Watch with stoploss @ +27.00 above the get-in point.________________________________________________________________________________________________________W.G.
