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Futures Update 7.28.2007

The corn market clawed its way back above our WatlooSoft sell signals by closing the week above the critical $3.30 exit price, basis December futures.  The fundamentals remain bullish for the entire grain complex, but corn has performed poorly against its substitution brethren:  both wheat and soybeans could easily attack contract highs within a matter of days, while the corn market will require some time to heal the short term technical view.   We remain bullish the grain complex and corn despite recent technical weakness and believe that the long term fundamental demand, particularly international, will be supportive for prices well into North American harvest schedules.  In addition, ethanol production and demand continues to speed past corn production and supply capabilities.

For now, corn remains long in the master portfolio with a 5% cash position.

Futures Update 4.3.2007

There has been little need to update this futures special, save for our brief instructions to the media:  prices have risen nearly vertical since we began our initial bullish forecast, in August of 2006.  But last week was different.  The grain markets sold off sharply on what was perceived to be a very bearish crop report, with plantings forecast to reach nearly 91 million acres. 

Obviously, the funds--net long futures contracts--were the original liquidators and primary culprits for the price chill.  From a fundamental perspective, the crop report managed to come in at the high end of expectations but still fell short of the number required to actually put the corn and grain complex bull market to rest.  After all, existing ethanol demand will lick up much of the typical carryover leaving ending stocks still near historic lows.

As we have noted before, mainstream forecasts factor in the best of growing conditions, and the most tepid of foreign demand.  If history is any indicator, and it usually is, foreign demand for US grain should support prices with the spring planting and summer growing season providing additional support for prices since there is little margin for error to meet existing demand.  In other words, the bullish fundamentals have not really changed; however, perceptions have in the short term.

Technical 4.3.2007

Technically, the corn chart below reveals that prices are now trading in the price gap created in early January (our last report).  As we noted then, it was the first gap that actually filled, which means that the market performed basic price consolidation.  We do not expect this time to be any different. There is support at $3.70 basis the May contract, and again near $3.50, which should be the floor until the market resumes the bull trend and charges towards $5.00 and eventually $7.00 prices.  Corn remains in our model portfolio, see the quarter ending note here.

Futures Update 1.19.2007

The grain complex continues on fire, particularly the corn market.  As our last forecast below indicated, corn found exceptionally strong support in a price gap between $3.50 and $3.60, basis the March contract.  Since then, the market has not looked back, but vaulted higher on some bullish carry-over, export, and ending stock reports from the USDA. 

We detailed earlier how quickly the demand side of the equation can rally corn prices.  Last week proved the point.  It is not summer yet, but sometime between now and then we will indeed see the headline, "US Burning its Food Supply". 

Of course, the content will be politicized since only the producers will allegedly benefit while the alternative energy sector and all down stream corn consumers will gripe for relief.  Whether or not there is any remains to be seen, but ethanol producers might stir additional subsidy sympathy from congress. Companies making progress with cellulosic ethanol development should shine brightly for investors.

As we amble into the spring months, corn should continue elevating the entire grain complex.  This is the year of the grain super bull and amazing as it seems, the fundamentals simply grow stronger for the bulls.

Prior updates below. (ed)

Corn Technical Update 1.4.2007

The entire grain complex witnessed mass liquidation on Wednesday 1.3.2007.  The down drafts created by the crude market was yet another bearish factor weighing on sentiment and prices.  It helps to put the corn price decline in perspective as funds and speculators have been adding to positions throughout the last several weeks and were breaking records based on the commitment of traders reports for net long positions.   Even with the near limit down move in the corn market, prices are still well above the recent trading gap created in November.  The price area with the green ellipse at $.345 to $3.55 should offer strong support for corn futures, and would be the first gap filled since the rally began in earnest last year. 

Since our last update in October nothing on the fundamental side of the corn trade has really changed.  The export numbers are slightly below what the USDA was expecting.  But, it is important to keep in mind that marginal export declines can be made up in one single month, so we do not lend much credence to the export argument for softening prices.  As the chart above reveals, there is resistance around $4.00.  As some would quip, there must be, since there is no visible chart paper above $4.00. 

We expect the corn bullish trend to continue higher, and pull backs are normal.  We still have a lofty target of $6.00 for the December 2007 corn contract.

Prior Technical Report From October Below

         The technical analysis for corn strongly agrees with the bullish construct of the fundamentals.  The $3.00 price area is acting as a launching pad as evidenced by the breakaway gap on the daily charts.  It is quite possible that corn could briefly retrace and fill this airy gap, but we do not think that it will trade there for long.  

Record Corn volatility and it is only October!

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