This email serves as a status update to the previous email sent May 29.
Dec 19 Corn has taken out the uptrend from the rally. The day the high was made, the market traded 454’0 and then dropped to 430’0 before recovering and retesting the high as expected. Yesterday, the market violated the 430’0 level but closed near the high of the day. Yesterday’s low now looks like a key level of support. Should it get violated, there are three major technical downside targets illustrated with white ellipses on the chart. The first is the gap that was left at 420’0. In previous years’ rallies (2015, 2016 & 2018), once 420’0 gave, there was no recovery bounce and no second chance. The second target is the convergence of the 50, 100 & 200 day moving averages at 398’2. The lowest target is all the way to 378’4 to fill the first gap that was left on May 14.
ZCZ19
Normal USDA behavior will leave new crop yield unchanged on next week’s report and then wait until the stocks and acreage report at the end of the month to manage acres. The problem with the end of month acreage report is that it is producer survey driven and the question that is asked is what is “planted or intend to plant.” If a producer in Illinois did the survey, as of that day they still very much intended to plant their acres if a window opened. The June acreage data may not fully reflect the true prevent plant story this year. Back to next week’s report, concrete data would suggest the USDA will lower demand for old crop in both the export and corn for ethanol categories which will be added directly to new crop stocks which could show new crop carryout >2.5bb if they leave the new crop supply side alone.
Due to the lateness of the crop, USDA will have little empirical data to reduce yield as early as most think they could/should. It may take them until August to really recognize what is happening. And that holds true for acres as well. USDA historically looks at acres in August/September to make adjustments and will continue to do so as FSA data is reported through the end of the year.
2019 has drawn many comparisons to 1993 and if that’s the case, why not look to 1993 as a potential roadmap for price action? In 1993, the initial rally lasted 3 weeks and behaved much like the rally we just saw over the last 3 weeks. The 1993 rally then retraced nearly all of the gains before making a low roughly two months after the initial peak. If we apply the percentage of the initial rally in 1993 that was taken back before the next leg higher (79.7%) and apply it to the current move in Dec 19, it would suggest a test of 380’0 and again there is a gap at 378’4 that started the current rally. After that correction in 1993, it then embarked on a four month bull market that culminated on the January final production report. When one considers the information flow and how the market will process the data, a low coming in late summer/early fall would make sense as USDA finally cuts yield and begins to address acres. As we get real harvest data and the USDA continues to cut yield during fall, we will likely continue the move higher. The difference will be that in the mean time demand will have a chance to rebuild at lower levels, and if the crop is as short as we think, we will end up with too much demand at lower prices and the fall rally will be a supply driven rally and a demand driven rally at the same time, which cannot be said of the move we just experienced.
Many people believe that this year could be a year that takes corn values to levels not seen since the drought in 2012 and I agree. But the timing of a rally sustaining itself right here and right now could be off and unfortunately might depend on the USDA’s willingness to make yield and acreage assumptions at this stage. This email is really just some “what if” thinking, but what if these “what ifs” are correct? How will this affect your mindset and your ability to market grain this year?
As always, if you want to chat, give us a call.
Brian Splitt
AgMarket.Net Branch Manager
Farm Division of John Stewart & Associates
2607 N Prindle Ave
Arlington Heights, IL 60004
815-665-0463 Desk
847-946-2080 Cell
@bjsplitt Twitter
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