Corn Runs on Speculative Longs, Finds Support... Then Fireworks

Strategy of the Day 1.17.2020

Corn Runs on Speculative Longs, Finds Support

March 2020 Corn futures are trading up 13 cents as of writing this report, recovering all of yesterdays nasty hair on fire sell off and then some. The selloff was sparked by the news that Mexico will be reducing its ethanol mandates (seen as negative for US corn exports). This news has me scratching my head, as just last month Mexico went on record with its 4th largest purchase of US corn in USDA history; so there may be another story developing in Mexico regarding their demand picture (more livestock perhaps; in anticipation of Asian demand? stay tuned). With that being said, US exports were reported yesterday for both corn and soybeans, with corn shipping 784k tons and may be a reason we have seen such a strong snap back reversal higher today.

In yesterdays STOD live video, I mentioned that the commitment of traders report has shown the non-commercial non-reportable position carrying a net long of over 80k contracts in the corn the last two weeks (and into the signing of the Phase One deal). The yellow vertical line is the date at which last weeks commitment of traders data was surveyed at 80k, while this weeks survey (from 1/14, the day before the Phase One signing) shows a slight reduction in their position to 76k. If I am correct, we may see this position reduce further by next week, as the volatility of the last 48 hours may have scared more speculative longs out of the market. This speculative long position was effectively punished by the market in the last 24 hours, with what looked like a run on their position to push them out of the market. The March corn traded below the January 10th WASDE and Quarterly Grain Stock report low, likely triggering stops for any traders using that low to manage risk but has reversed higher now after what can only be assumed as commercial buyers taking advantage of lower prices.

From a technical perspective, March 2020 corn is still very much in a range between its 392.25 November WASDE news high (also highs for the month of December and January) and the low end of that range formed by the contracts November and December lows (373 and 371 respectively). Today price rallied beyond yesterdays high, which in and of itself is a bullish signal, however, to have done so after such a decline yesterday suggests that there is a considerable fight going on in this market over the direction of corn. I am still expecting the market test back towards the $4.00 area, if the momentum of todays moves carries through the 392 resistance and we break the downward sloping trendline resistance (yellow dashed line on chart) which currently comes in at about 387. Its a range until its not, and consolidation has proven to wipe the order book clean multiple times between the 390 and 375, but the impressive reversal in corn has my attention again and expecting a test to of January highs in a period of price discovery for the bulls.

Dan can be reached at (312)277-0110 with any question or further comments, and you can click here to get access to the Zaner Ag Hedge daily newsletter to receive his emailed commentary daily!


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March 2020 Corn 60 min Chart