Market Perspectives – November 21, 2014

Chicago Board of Trade Market News

Outlook: Corn contracts declined early in the week and then rebounded. The result from such price action is that corn charts became exciting to traders as a potential head-and-shoulders pattern could be in the works. A similar bearish pattern has also developed in soybean and meal contracts. The fundamentals for price weakening in the soy complex is more justified than for corn. Nevertheless, price weakness in the soy complex would have some negative influence on corn contracts. Such developments would be bearish and could trigger the December corn contract to suddenly drop down to expire toward $3.50 per bushel. Of course, rejection of that potential head-and-shoulders pattern could cause a bullish spike in corn contracts toward $4.00 per bushel. Such a spike could occur if South American weather forecasts decline in favorability, which would support both the soy complex and corn contracts.

Any setback in corn contracts is expected to be treated as a buying opportunity by end-users because the underlying fundamentals are more bullish than the price weakness that is presently being implied by a chart pattern. The limited price weakness this week has already resulted in several export sales announcements for corn. As well, domestic feed demand has increased due to recent cold weather. This combination of increased demand is happening as feed-grain producers remain reluctant sellers. The result is a stronger basis for corn. A sell-off in corn futures will just strengthen basis even further, and that combination of factors is the reason that any sell-off will be perceived as a buying opportunity.