Market Perspectives October 25, 2013

Outlook:Bullish and bearish traders seem evenly matched around the $4.40 price level in the nearby December corn contract. As a result, the December contract has been in a fairly horizontal pattern since October 1. This has been somewhat of a nuisance for large speculators because their technical systems are becoming less bearish over time as selling has been evenly matched by stout buying. The strength of buying has surprised some of the large sellers who have sought to force the opposing buyers to step aside. The continued selling of contracts and the lack of decline in price is creating an increasingly threatening scenario for some of the large speculative shorts, because even a limited bounce can influence the value of positions with price levels that have been averaged down.

Now, traders with large short positions truly need the November WASDE to present a larger than expected average U.S. corn yield to justify a further sell-off in corn futures. Perhaps those institutional traders have listened to financial analysts at large banks call for $3.50 per bushel corn, but actual market participants understand that such price levels are unlikely if there is to be 90-plus million acres of corn planted next season. Further, the prospect that corn contracts could temporarily sell off an additional 15-20 cents lower seems to be of little concern to corn end-users who are presently locking in favorable margins. Alternatively, a large speculator with a committed short position at present price levels must continue selling, so that indicators in trading systems do not trigger buying prior to the November 8 WASDE. It may prove difficult for them to stop a limited bounce in corn futures prior to that report.