Corn Prices on the Rebound
Global commodities markets have been falling for more than one month now at sometimes impressively fast pace. Energy, precious and base metals, and also agricultural products have declined by double digit percentages. It means therefore that there are potential technical rebounds on those markets and opportunities to take profit for more or less short-term corrections.
Corn may be one of those opportunities. In our last update on corn, on July 10, we were betting that $6.50 would be the main target but that a breakdown of the 100-day moving average would give some further bearish momentum. This is what happened, as the price action posted a low at $5.04 last week. It has however already slightly rebounded. Technical indicators show that the current rebound should drive the prices higher.
Corn prices yesterday fell recently to the lowest level this year after the US Department of Agriculture revealed that farmers were able to boost the country's corn crop in spite of the damage generated earlier in the season by the worst flooding in 15 years.
The USDA forecast the 2008-09 season would see the second largest corn crop on record, triggering further selling of agriculture commodities futures. That's why the prices declined from a high of $7.99 a bushel last June to the recent low at $5.04, which is a 37%-fall. This cooled down the concerns about global food inflation.
Nevertheless, food prices are still 44 per cent higher than last year and almost double the level of 2006.
Yields and harvests were expected, thanks to new plantations in the US, to increase significantly the offer, driven by food demand and bio-fuel consumption. However price will remain sensitive to weather conditions that may affect the expected production.
Prices countertrends are then likely. Technical indicators help us to identify them.
The prices have already retraced 23.6% of the bearish trend initiated in late June (between points A and B on the chart). They should go higher. MACD has triggered a bullish signal when it crossed its above signal line, as well as the RSI that indicates that an obvious oversold configuration was reached. The price oscillator also shows that volume is building up on the short-term. Consequently a momentum is building up too on the upside.
The main target is therefore likely to be the 50% Fibonacci retracement. Indeed, it also corresponds to the 100-day moving average, around the level of $6.50. It would become a solid resistance to this rebound.
Gabriel Andre
for The Daily Reckoning Australia
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About the Author
A former Futures and FX trader/portfolio manager, Gabriel Andre has worked in several hedge funds and asset management firms, both in Europe and Australia. He is a contributing editor to both Diggers & Drillers and the Australian Small Cap Investigator.
Comment by John Standen on 21 August 2008:
Gabriel - I am afraid that my first impression is that, in the words of 'The Castle', you are tripping.
Although I have great respect for 'Technical' analysis, the fact is that in a period of gargantuan deflation and the coming, unprecedented and massive unemployment, there is more likelihood of widespread death by famine than there is the likelihood of food 'commodities' rising in price. What planet are you from?
Comment by Ross on 22 August 2008:
@John Standen. We all have to eat, maybe not corn due supply and demand fundamentals, but wheat with stockpiles still low. Also long on sugar with world price still under Brazil's production cost despite easing of world inventory glut in past decade; but the US import blockade of lower cost Sugar ethanol in favour of subsidised local corn inefficient production is tenuous in the face of oil supply side issues.
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