Chicago Board of Trade Market News
Outlook: The holidays were kind to the corn market, bringing bulls the gift of a high-pressure ridge across Brazil and heavy rain with some flooding for Argentina. While Brazil and Argentina might argue the classification of recent weather as a “gift,” bulls at the CBOT view it as such. The high-pressure ridge started last week and is expected to hold for at least one more, brining hot, dry weather to northeast Brazil during the key soybean development period (January in Brazil is equivalent to July in the U.S. crop cycle). Concurrently, the ridge creates a wet pattern for southern Brazil, Argentina, Paraguay, and Uruguay with some low-level flooding. All in all, the situation creates some concern for the South American soybean crop which has spilled over into support for corn.
Aside from the weather, there has been little fundamental news for the market to trade. Exports continue to run above year-ago levels (YTD bookings are 75 percent above last year) but have been slowing since early December as the market awaits USDA’s Grain Stocks report on January 12. The report will give a good indicator of how much grain is “in the bin” and available for export and domestic use. It will likely be a market-moving report with a significant price movement one way or the other. Traders appear to be paring back short positions in preparation for a possibly bullish report.
One interesting feature of the markets lately is investment funds’ and money managers’ growing interest in building long positions. Many investors view commodities as “cheap” given the long commodity bear market and rising stock prices, prompting interest to “buy low”. With a stronger macroeconomic outlook in place and predictions of increasing inflation, investment funds are expecting commodity prices to rise. If changing fundamentals motivate the market to trade above its recent range, the move would likely generate additional investment in the corn/grain markets.
From a technical perspective, the uptrend in March corn remains intact. Indeed, the market touched the trendline on December 23 and has since pulled away in a classic indicator of a trending market. However, the resistance line formed from the October 20 and December 13 highs has turned back four rallies since October and hovers above today’s close at $3.65. Corn is trading above its 10-day, 20-day, and 40-day moving averages which is a bullish sign, as is the “buy” signal flashed by the MACD earlier this week. However, the burden of proof is on the bulls and pushing above resistance will be a substantial fight. Look for the market to get turned back at the resistance line and resume choppy trading this week unless substantive new fundamental information is revealed.