I've only been following the commodity markets since 2012. That was the year of the drought, which broke the night before my first daughter was born (about 5 weeks early). That fall and following we saw corn futures prices in the $8 range. And prices remained above $5 beyond the next season from what I remember. In the last couple years we have sort of seen a stagnant sideways movement in corn roughly in the $3 -$4 range. There has been a lot of talk about being 'overdue' for another drought to push prices back up to more profitable levels. It does not look like that is going to be the case this year. However, those of us newer to these markets are learning that cool and wet springs could impact planting enough to have similar supply reductions as we saw in 2012 which could trigger prices at levels we have not seen in a few years.
Technical Analysis
From a technical perspective looking back at the last couple of weeks we have seen the RSI reach overbought levels and a bullish crossover in the MACD. As of the last market close the RSI was over 70 and after some convergence in the MACD it looks like it remains bullish. And prices are well above the 20,50, and 90 day moving averages. Not shown is the volume, but it has been tracking right along with the rise in prices. Technically this market is hot and may get hotter.
Fundamental Analysis
While technical signals might give an overbought signal on a short term basis, the fundamentals could support strengthening at lease over the mid term through the harvest season as we learn just how much of the late planting will turn into a crop that faces heat stress during the summer and delayed harvesting issues in the fall. In the latest USDA WASDE report total harvested acres and national average yield was reduced. Recently some analysts have even entertained the notion of $10 corn. Really? I thought. So I plugged the latest numbers into my balance sheet and my very crude model for December corn futures to see what I would get.
(abridged USDA June WASDE numbers)
My model is based on some of the work by Scott Irwin and Darrell Good at U of I, but very loosely. I only used about 5 years of data and did not have the correction factors for weak or strong demand. But at least for the last year it has served as a good barometer at least directionally for corn prices. Based on the current WASDE numbers its a bit short of where December futures closed ($4.63). But if we plug in the very bullish harvested acres numbers that are being thrown around $10 corn definitely looks like at least an upper bound based on my model. The market is somewhere between my model's projections going off of the WASDE numbers and something a bit more bullish.
We always hear about late planting and how its going to hurt yields, and how a hot or dry streak through the summer is going to hurt pollination etc. and modern genetics seem to fool us by the time we get the final numbers on national yield (at least for the short time I have been following the market). But this year might really be different.
References:
Irwin, S. and D. Good. "New Corn and Soybean Pricing Models and World Stocks-to-Use Ratios." farmdoc daily (6):99, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, May 25, 2016. Link: https://farmdocdaily.illinois.edu/2016/05/new-corn-and-soybean-pricing-models.html
Is $10 Corn a Possibility??? The Van Trump Report. June 13, 2019. https://www.vantrumpreport.com/why-i-remain-bullish-corn/?loggedout=true
***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****
