07-15-2017: December Corn: Heat Wave Impacts Supply

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calend Spread

Level Table
Other Factors
Recommendation

1>012
345
789


Introduction

6 There are still some holdouts,notably at the U.S. Dept. of Agriculture, who think the current weather rally in grains has been overdone, especially with regard to corn. Corn, however, as been trailing along close to the cost of production and still hovers in the lower part of its historical price range. Extreme heat in the midwest will damage the corn crop and reduce yields. It seems an adequate excuse for corn prices to rally, and hedge funds are switching out of net short positions and joining other speculators in re-assessing where corn prices will go next. The situation is dominated by weather, but forecasters see little relief in sight for the foreseeable future. Our technical indicators suggest a strong basis for corn to rally further despite extreme pullbacks along the way. Some farmers are already abandoning their corn fields in certain parts of the country.


Intermarket Analysis

We fed Kansas wheat, Chicago wheat, and soybeans into a neural network to get the following result:




Parabolic Chart

October Platinum:

Parabolic Chart


Nirvana Chart

October Platinum:

Initial Chart


News Analysis

A major heatwave across many parts of the country appears to be responsible for a surge in grain prices as a whole. Normal crop yields are no longer anticipated due to the heat. Triple-digit heat is forecast for the Dakotas, Nebraska, and Kansas as well as high 90's in Minnesota and Iowa over the next ten days. Precipitation is expected to be limited over most of the western corn belt through July 25th. Only 65% of the corn in the weekly Corn Conditions report was rated goiod to excellent compared to 68% last week and 76% last year. Overnight lows will be in the 70's. Conditions have declined more than many previous estimates. Some believe that if high temperature readings persist much longer, price rises in the corn and other grain markets coiuld just be getting started.

Soybeans are more hearty and can withstand drying conditions, but corn does not do well under extreme heat. Recent corn yields of 169.3 bushels per acre compare to previous USDA estimates of 170.7 bushels, so conditions are worsening. Total production is now seen at 14.104 billion bushels compared to a previous USDA estimate of 14.065 billion bushels. Weekly corn export inspections for 2016-17 reached 88% of the USDA forecast versus a 5-year comparable average of 81.7%. Estimates for 2016-17 ending stocks are 2.321 billion bushels compared to a 2017-18 estimate of only 2.170 billion bushels. There currently may be a "story" with pollination problems for crops in the western corn belt to add to possible shortages..

Corn is currently flirting with the $4.10 level with analysts sseeing that as this is a pivotal point reaching back to 2014, and predicting $4.50 to as high as $5.10/bushel.

Corn and other grains are experiencing a weather rally. Breakevens per acre look less to some with average yields around 170 bushels per acre, corresponding to $3.80 for cash cost of production. "Better late than never," exclaim some for a corn rally that could be profitable for growers. There are weak basis numbers for "old crop" inventories and deliveries, but the spread is widening rapidly for new crop prices. Current option calls are capping expected prices around $5.00.

Traders are generally trading fear before fact according to some. What happened to Minneapolis wheat this year could spread to corn and soybeans. Yield loss due to hot weather in the pollinating season for corn has prompted funds to get out of their widely-held bets that corn prices would fall. But money managers as of now are still net short on corn and soybean futures options. There are almost no weather forecasters that are seeing any ease in drought conditions in key growing areas, and some Dakota farmers may abandoned their crops altogether.

Corn, among other things, is used to develop fertilizer, and fertilizer company shares moved higher recently. Potash Corp. and CF Industries Holdings are examples.

In latest reports, some rains were moving through the corn belt. Outside markets are limiting downside risk in corn. Latest weekly ethanol production has been down.

President Trump reversed his stand on NAFTA, stating that the U.S. has no immediate plans to withdraw from the trade deal. Withdrawal from NAFTA would have produced higher agricultural prices. Still, Trump states "a new negotiated deal" must be reached. NAFTA accounts for $1.1 trillion per year between the U.S., Canada, and Mexico.

USDA officials are holding their corn yield forecasts in latest reports despite dryness in parts of the Corn Belt. USDA is sticking by its estimates of 170.7 bushels per acre. USDA officials were quoted as saying that rainfall shortages "did not represent an extreme deviation from the average." 2.325 billion bushels of ending stocks at the close of 2017/18 is an upgrade from last month's projection by 215 million more bushels. According to Chiago Futures International, a broker, corn prices are "looking inflated."

While still net short, hedge funds are aggressively buying corn futures and all other grains. Managed money cut net shorts by more than 100,000 lots. Mother nature is driving the bus and market uncertainty surrounds warm/dry forecasts for weather.


Point & Figure Chart

570.0I                                                                  R  7/11
     I CBT - Dec-17 Corn, 5000 bu., c/bu.          Cm.=0.60  Lim.=24.0
     I
     I
     I
550.0I_________________________________________________________________________
     I   X
     I   XOX
     I   XOXO
     I   XOXO
530.0I___XO_O__________________________________________________________________
     I   X  O
     I   X  O
     I   X  O
     I   X  O
510.0I___X__O__________________________________________________________________
     I   X  O
     I   X  O                          X X
     I   X  O                          XOXOX
     I   X  O                          XOXOXO
490.0I___X__O__________________________XO_OXO__________________________________
     I   X  O                          X  O O
     I   X  OX                         X    O
     I   X  O                          X X
     I   X  O                          XOXOX
     I   X  O                          XOXOXO
490.0I___X__O__________________________XO_OXO__________________________________
     I   X  O                          X  O O
     I   X  OX                         X    O
     I   X  OXO                        X    O
     I   X  OXO      X                 X    O
470.0I___X__OXO____X_XO________________X____O__________________________________
     IO  X  OXO    XOXO                X    O
     IOX X  OXO  X XOXOX         X     X    O
     IOXOX  O OX XOXOXOXO        XO  X X    O
     IOXOX    OXOXOXO OXO        XO  XOX    O
450.0IOXOX____OXOXOX__O_O________XOX_XOX____OX_________________________________
     IO O     OXO OX    O        XOXOXO     OXO
     I        OX  OX    OX X     XOXOX      OXO
     I        OX  OX    OXOXO    XOXOX      OXO
     I        O   O     OXOXOX   XOXOX      O O
430.0I__________________O_O_OXOX_XO_OX________O________________________________
     I                      OXOXOX  O         O
     I                      OXOXOX            O  X
     I                      OXO OX            O  XO
     I                      O   OX            O  XO
410.0I__________________________OX____________OX_XO__________X_X_____X_________
     I                          O             OXOXO          XOXO  X X
     I                                        OXOXO          XOXO  XOX
     I                                        OXOXO    X     XO O  XOX
     I                                        OXO O    XOX X X  OX XOX
390.0I________________________________________O___O____XOXOXOX__OXOXOX_________
     I                                            O    XOXOXOX  OXOXOX
     I                                            OX X XOXOXO   O O OX
     I                                            OXOXOXO O         O
     I                                            OXOXOX
370.0I____________________________________________OXOXOX_______________________
     I                                            O OXO
     I                                              OX
     I                                              O
     I
350.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
                      1111111                          111111
      5666777888888999001222212334445555666666677778899011222122244567
      1012111111222112020011212131220112011122201111201002002022202010
      5323467013447178975478396712163194956707982357674392151578831153
Our computer tells us a non-conventional reactive approach works best for corn on p&f charts. Therefore the above chart is taken as giving a sell signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical high and are in a seasonal down period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "Pattern." It is giving a buy signal.

Internal Printout 1 Internal Printout 2

Results of "Pattern" for Corn (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system has just triggered a buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $50. Initial margin on a single contract is $1,122. Use of options is not advised.


Historic Range

Scale trade buyers are entering the market for the long term in this price range.

Historical Chart


Commitment of Traders

Commitment 1

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. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-long.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to down is imminent near a volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Sell (5) Corn December 450 Calls and Buy (5) Corn March 490 Calls @ 2-1/4 to the sell side or greater.


o 1 o 2 o 3 0 4 o 5


Calendar Spread

What the Dec. - Jul. (2018) calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up in the long run. The best time to enter or leave the above spread is when it is at -17.00 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -22.00 or wider bselling the far as prices are falling and then buying the near. At this time, we appear to be at the buy the far, sell the near point.





Level Table:

Level Table

The path of least resistance is up.
430.0|                                                                  R  7/11
 CBT - Dec-17 Corn, 5000 bu., c/bu.          Cm.=0.60  Lim.=24.0
     |
     |A
     |A
420.0|AA_______________________________________________________________________
     |AA
     |AA
     |AAQQ[
     |AAAPQQQ[[   <<<
410.0|AAAPPQQQQX[[_____________________________________________________________
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     |AAAAPPQQQQRRRRRXXYYZ[
     |AAAAOOOPPPPQQQQQRRRRRXXYYYYZZ
     |AAAHOOOOPPPPPPPQQQRRRXYYYYYZZZ
400.0|AAAGGGHHHHOOOOOOOPPPPQQQRRRRXYYYYYYZZZZ__________________________________
     |AAAGGGHHHHHHJLOOOOOOOPPPPQQQRRRUVXXYYYYYYZZZ
     |AAGGGHHHHHHHHJJKLLMNNOOOOOPQQRSTUUUVVWXYYYYYZZZ
     |AAAGGGHHHHHHJJKKLLLLLMNNNOOPPQRSTTTUUVVVVWWXXXYYZZ
     |AAAGGGHHHHHJJJKKKKLLLLLLLMMNNNNNNNOOPPRRSSSTTTTTUUUUUVVVVVVWWWWXXXXXXXXYY
390.0|AAAFGGGHHHJJJJJJKKKKKLLLLLMMMNNNNNNORRSSSSTTTTTTUUUUVVVVVVVVWWWWWWWWXXXXX
     |AAFFGGGGGHJJJJJJKKKKKLLLMMMNNNNRRRSSTTTTTTUUUUUVVVVVVWWWWWWWWXXXXXYYYZ
     |AAABBFFGGGGJJJJKKKLLLMMMMNNNRRSSTTTTUUUUUVVVVVVVWWWWWXYZ
     |AAAABBBBCCCEFGGGGGGJJJKKKKKLLLMMMNSSSTTTTUUUVVWWYZ
     |AAABBBBBCCCDEEEEFFGGGGGGJJJJKKKKKLLMMMMMNSSSSTTTTUUUUVYZZZ
380.0|AAABBBBBCCDDEEEEEFFFGGGGGJJJKKLLLMMMMMMSSTUZZZZZ_________________________
     |AABBBBBCCCCDDDEEEEEEEFFFGGJJLLMZZZZZZ
     |ABBBBBCCCCDDDEEEEEEEFFFFFJJLLZZZZ
     |ABBBBBBCCCCCDEEEEEFFFL
     |BBBBBCCCCCDDEEEEEFFFFF
370.0|BBCDEEEEEFFFFF___________________________________________________________
     |CDDDEEEEFFFFF
     |CDDDDEEF
     |CDDDDF
     |CDDDD
360.0|DDD______________________________________________________________________
     |DD
     |DDD
     |DDD
     |
350.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.123
                   1 1 1 1 1 1 1                                      
       7 7 8 8 9 9 0 0 1 1 2 2 2 1 1 2 3 3 3 4 4 5 5 6 6 7           7
       1 2 0 2 0 2 0 1 0 1 0 1 3 1 3 1 0 1 2 1 2 1 2 0 2 1           1
       3 6 9 3 7 1 5 9 2 6 1 5 0 7 1 4 1 5 9 2 7 1 5 9 3 0           1


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 7/11 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                     CZ7     December Corn

                      High Price:  448.2
                   Current Price:  414.2
                       Low Price:  397.5

                            Risk:  0.079
                     Opportunity:  0.161

                    (O/R) Ratio =  2.036


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
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
Historic Range + 1
Commitment of Traders + 1
Range/Volatility + 1
Level Table + 1
Other Factors + 1
Total + 8
Place 13 December Corn on a Buy Watch with stoploss @ -18-1/4 below the get-in point when recent price is represented as "398-3/4".
____________________________________________________________________________________________________________________________________________W.G.