With record crops being forecast by the USDA it’s no surprise to see this reflected on the daily chart for most of the grains, and for this post I would like to focus on the September contract for corn.
The daily chart for corn recently fell to a new 4 year low as this year’s output is expected to rise above 14bn bushels for the first time, with the USDA increasing its forecast for output to a record 14.03bn bushels, a rise of 1.2% from last month’s estimate. In addition, yield has also moved higher to 167.4 per acre, up from the previous forecast of 165.3 bushels from last time around. Whilst the numbers were below analysts’ expectations this nevertheless confirmed the market’s view of an increase in supply worldwide.
From a technical standpoint the daily chart for the September contract for corn neatly reflects the current fundamental picture with the initial breakout to the downside in mid May as the price moved firmly away from the deep area of congestion at the 485-520 price region, and clearly visible on the volume at price histogram (to the left of the chart). This was followed by two further periods of consolidation, the first breaching the potential support at the 465/470 region in early June before moving lower once more into a second, more extended period of congestion, at the 435/450 region, both of which were clearly defined by the accumulation and distribution indicator.
This phase of price action duly came to an abrupt end with the sustained moved lower on the 30th June as the commodity closed the session on a wide spread candle on high volume thus signalling a further move lower which has duly been delivered throughout July and into early August. However, it is interesting to note that this move lower has generally been associated with relatively thin volumes representative of the time of year. In the last few days, and particular from the price action and volume of the 12th August, we have started to see a modicum of bullish momentum returning for corn. However, whilst the volume on the 12th August was high, the subsequent volumes for Thursday and Friday of last week have both been well below average, and suggestive that any rally is likely to be short lived, and certainly given the fundamental picture corn prices may well move lower once again and back to test the 350 area in due course. For any longer term recovery volumes will need to increase dramatically and to date we have yet to see a buying climax in any of the longer term time frames so the current rally appears to be a minor reversal higher into a further phase of price congestion, albeit at a lower price level.
By Anna Coulling