Grain Spreads: Dec 21 Corn Examined

Sean Lusk General Commentary Leave a Comment

Commentary

New Crop corn dove 40 cents to the key 5.32 support level on a limit down close yesterday. We briefly dipped to 5.30 last night, but with everything else today, rallied back briefly above weekly trend line resistance at 5.70 this week, to close the day and week out at 566.2. Dec 21 corn lost 40 cents on the week, but we finished with a flurry of buying to finish 36 cents off the weekly low and at a mid-point for the weekly range. Corn today was aided by new crop beans surging  60 cents higher. At one time a 60 cent move in beans was called limit up, but not anymore as bean limits have been raised to 1.50 while corn has moved from 30 cent daily limits to 60 cents. Today’s rally comes on a few fronts. First, we have been down 5 to 6 sessions in a row. Some profit taking may have been in order as overnight rains west of the Mississippi’s failed to materialize highlighting another miss by GFS modeling. Technically the December 21 corn high was 6.28 last week. That level represents 25 percent higher on year for corn. Yesterday’s close was 5.32. that represents 10 percent higher on year. So in a little over a week new crop corn dropped 15 percent. Maybe a little too far too fast, but then again at these levels, I would not be surprised to see this type of volatility continue in  the weeks ahead if these forecasts fail to verify and flip flop every few days. 

New Crop beans aided Corn’s recovery in my opinion today which tells me that continued dryness in the Western growing areas is a major concern. Crop quality concerns will only become greater if Western Iowa, and the Dakotas remain dry. While Beans aren’t made in June but rather in August we have plenty of time for a recovery for adequate soil moisture to return if weather cooperates. Also of note, per Reuters,  “China’s state-owned importers bought at least eight cargos (480,000 MT) of U.S. soybeans, today, two traders familiar with the deal told Reuters. This marked the country’s biggest U.S. bean buys in 4.5-months and comes at a time when the country is typically sourcing the bulk of its bean needs from South America. Traders have signaled deals for as many as 14 cargoes of U.S. soybeans (840,000 MT) are being considered”.If this is verified in the next week or two, it’s a shot in the arm regarding demand at this stage in a supply side driven market.

Included here is a December 21 corn futures chart. Notice the steep trend-line highlighted by the Blue Arrow coming up the page from last August’s lows. That line now serves as resistance into next week and beyond as Dec 21 corn is the most actively traded futures contract. Here are some technical in my view that should be watched. Key resistance next week is 5.79 to 5.80. That represents 20 percent higher on year and the key trend line resistance I just referred to, A weekly close over this level and we push to 6.03, and then 6.28. those levels represent 25 and 30 percent higher on year for new crop Corn.  Support is seen at 5.56 and then major support at 5.32. That 5.30/5.32 level  has to hold or it’s Katy bar the door in my opinion to 5.08 then unchanged on the year at 4.84. 

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Sean Lusk

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