What an end to the month! If traders in soft commodities were expecting a quiet end to the first quarter of 2013, there was a real sting in the tail, with the latest USDA report released on the 28th March, sending corn futures tumbling, and spilling over into oats and the soybean market. And the catalyst for these dramatic falls?
Well the report was headed ‘USDA projects largest corn acreage since 1936’, and was enough to send shock waves through the soft commodity markets on Thursday last week, with the May corn futures contract tumbling through the 700 cents per bushel area, and ending with a wide spread down candle on the daily chart. This negative sentiment has continued in trading today, following the closure of the markets on Friday, with a gapped down open at 679 cents per bushel, and a second consecutive day with a wide spread down candle, as the market slumped to test the 640 cents per bushel region.
Oats followed a similar pattern, reversing last week and ending on Thursday with a bearish engulfing candle, and breaking below the 400 cents per bushel level to trade at 376 per bushel, and reflecting the negative sentiment for corn following the report. Soybean also sold off sharply moving back below the 1400 cents per bushel level to currently trade at 1392.50.
However, it was corn which took the brunt of the fall, and as we can see from the above, the technical picture is extremely interesting, and indeed to chart the fall, we need to move back to the longer term timeframes and consider the weekly chart in more detail and in particular in the context of volume.
The foundations for the bearish picture for corn can be traced back to the summer of 2012. During July and August we had four consecutive weeks of bullish price action, with each week ending with a wide spread up candle. However, the volumes on each of these was below average, and in general falling, hardly the signal of a strongly bullish market. It was no surprise therefore to see corn futures top out at the 850 cents per bushel region with two hammer candles, followed by rising volumes as the selling started in earnest.
Since then the market has remained weak, with narrow spread up candles and high volume giving further signals of weakness. Thursday’s price action was the final nail in the coffin for the short term, and with the gapped down open now adding further pressure, the outlook is firmly bearish in the short to medium term for corn, and indeed oats.
Having broken below the potential support region at 680 cents per bushel as shown with the yellow dotted line, the next level for potential support is in the 615 per bushel area where an area of deep price congestion awaits, the green dotted line. Any move through here could see the commodity plunge in price through the 525 and beyond in the longer term. Time will tell, and as always, the answer will be reflected in the associated volume which ultimately validates the price action.
By Anna Coulling