As US farmers wind down the harvest of a record corn crop, the seismic shift from tight stocks to a mountain of yellow grain has driven Chicago Board of Trade (CBOT) spot corn prices to their lowest levels in three years. Some analysts said improving demand or bargain buying will keep prices from falling further, while others said the market is likely to slide further due to the cumbersome supply.
"No matter how you cut the mustard, you tripled the carryout, and it's in the market, already well discounted ... we are near our lows," said Charlie Sernatinger, analyst for ED&F Man Capital. CBOT spot December corn closed at $4.22-3/4 per bushel on Friday, down nearly 50 percent from the record high set late last summer. The December contract fell below the key 50-, 100- and 200-day moving averages in June and remain below those levels.
Major chart resistance is now at the 50-day moving average of $4.37-1/4. Also, "important resistance is at the 20-day moving average of $4.25-1/4, but even more important resistance is a six-month trendline level from June around the $4.28-1/2 level," said Mike Zuzolo, analyst for Global Commodity Analytics. "A close above that level would violate the downward trend of the past six months and would be a bullish technical signal," he said.
Chart watchers said major support is the three-year low of $4.10-3/4 set on Tuesday. "That's the only thing holding us back from testing the $4.00 per bushel level in corn," Zuzolo said. Corn fell to that level following the Environmental Protection Agency's proposal to lower the amount of corn-based ethanol required for blending in gasoline next year, and on news that China had rejected a cargo of US corn that contained a genetically modified trait that the country does not allow.
With the expiration of CBOT December corn options on Friday, traders will be watching to see if funds unwind their December futures positions next week ahead of first notice day for delivery on the December contract on Friday, November 29. Corn futures reacted normally this season, sliding as estimates of the crop's size grew larger.
Price lows are typically made after harvest, and rallies are usually shallow and short-lived, said Art Liming, futures specialist for Citigroup. "Rallies are probably limited to another 10 to 15 cents, maybe in a pinch (the December contract) can stick its head above the 50-day moving average, but then it runs into stiff resistance at the first retracement at $4.48-1/2, which coincides with the August low," Liming said.
No one is expecting a sustained rally unless a drought surfaces in the United States or in another key global producing area such as South America or the Black Sea region. "It will be a banner year for change in 2014. Farmers will be switching from corn to beans," said Chris Manns, president of Chicago Traders Group Inc.
US farmers this season planted the largest area to corn in over 70 years, and adequate growing weather boosted yields as investor fund selling drove prices lower. "December corn could stay relatively firm before going off the board," said Bryce Knorr, senior editor for Farm Futures Magazine. "But seasonal trends in years of normal production suggest futures will continue to fade into winter, spring and summer, unless growing season troubles develop in South America, the Black Sea, or the US."
US corn production prospects jumped nearly 30 percent from last year's drought-reduced crop, leading to an expected supply buildup from a 17-year low this year to a nine-year high next year. Now, commodity funds are holding huge net short positions in corn futures, and veteran traders and analysts see no reason for them to change direction. "Funds are ignoring commodities and looking for other places to put their money which is a huge deal," Manns said.
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