Trying to Find a Bottom?

What’s Happened…

On February 26, the May through December daily corn futures contracts posted a bullish key reversal on price charts. A bullish key reversal is a chart formation in which prices exceed the previous day’s low and high, and close higher than the previous day’s close. More importantly, when this occurs at the bottom of a trend, it may signal a potential change in price direction. The key to any chart formation may be follow-through, confirming the signal. In the days after the reversal in February, corn futures rallied and finished firmer 3 consecutive sessions. After the prolonged downtrend prior to February 26, the market may now be providing a signal for buyers to become more aggressive.

Why is this important…

In late October after a small rally, corn prices began a downward slide that continued until the end of February. Increasing production numbers in the November and January USDA supply and demand reports indicated the crop was getting larger. In addition, the reports indicated demand was stagnant and, therefore, the bottom-line number (called carryout) was increasing. Carryout is the amount of corn projected to be left over at the end of the marketing year, August 30. It is not unusual for price direction to be the opposite of the trend of carryout. If carryout is growing, typically prices move lower. From an end user perspective, the market is now providing value to end users which may encourage buying. In this author’s opinion, value may be termed as something you could purchase for less than it costs to produce. Another factor is money flow. A player in the marketplace is managed money, or large speculative traders. A record net short (sell) position by managed money through the third week of February was noted in the weekly Commitment of Traders (COT) report. This report outlines who the large players are in a market. The COT, in the last week of February, indicated less managed short positions, potentially signaling that large traders may be exiting (buying back) short contracts.

What can you do?

If you’re an end user of corn, take notice of some of the changes over the last couple of weeks. While nothing is guaranteed, technical signals may suggest a potential change in price direction. Through the third week of February, buyers who need to continually procure supplies have been rewarded by being complacent and buying only as needed, as prices had remained in a downtrend. Now, however, the corn market may be signaling that selling is waning, and those same buyers should consider the opportunity to lock in longer-term needs. This is especially important for this time of year because both the Southern and Northern Hemispheres have major growing seasons in the months of head. Weather, from a historical perspective, has been the most dominant factor determining yield. Should concerns over crop size materialize, supplies could tighten and encourage both end users and speculators to be buyers. This could put upward pressure on prices. If you are a producer and you are holding corn in storage, the market may also be signaling that being patient could pay dividends. This may be a time to be a more selective seller by setting higher price targets.

There’s more than one way to hedge your risk in the market. Talk to a professional; learn about the tools available that can help you accomplish your goals. Weigh the risks and rewards. Follow the strategy that will work best for your operation.

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Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.

About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

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Bryan Doherty