Is the corn market running out of sellers?

March 15, 2016 11:31 AM

After looking at the long term monthly charts in the corn market, it would appear that the market has run out of sellers.

Fundamentally, with all the talk of trend following funds holding a record net short position in corn, it would seem that the market could be poised to make a push higher. Although for now, the corn market continues to remain range bound. Since November we have basically seen a bottom of around $3.50 per bushel and a high of roughly $3.75 to $3.80 per bushel. Maybe with the continued tight trading range and the technically oversold condition we will finally see the market rally in the corn.

Technically, my support area in the corn has held to my satisfaction. My major support area in the corn market is $3.50 per bushel. It's a small victory for each day the market stays above this support. I have added my favorite technical indicators to the charts below. I have coined them the "10/20/50/BB Trend Finder." They are the 1-0 (red line), 20- (green line) and the 50-(blue line) day simple moving averages (SMA). I have also added Bollinger Bands (BB) (light blue shaded area) and Candlesticks (the red and green bars with the candle stick wicks, and on this daily chart each bar represents one day of trading).

In addition to where support is, on the monthly chart below these indicators show me that the market has been in a consolidating range and has appeared to run out of sellers. While past performance is not indicative of futures results, when we had such short candlesticks back in 2010 the market popped and rallied more than $4.50/bushel from a low of roughly $3.25/bushel in May to a high of about $7.80 per bushel in April. Many farmers I'm sure would welcome move like that.

I figured all this out by putting my "10/20/50/BB Trend Finder" on the charts above and applying these indicators to the charts at the click of a mouse, which I found here, which is a web application that we have developed for our clients called MARKETHEAD where I get about 70%-80% of all my research from. 

One strategy that could be used here to allow farmers to sell their current cash crops could be buying bull call spreads.


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About the Author

Matt McKinney is a full-service options broker at Zaner Group both buying and selling energies, metals, grains, softs, currencies and the 30-year bond market. My strategies include time frames of 45-120 days with the ability to liquidate at any time. I can be reached at mmckinney@zaner.com.

Whether you're a novice trader who wants to participate in options on futures or an experienced trader, you can also check out my blog at http://www.mmckinneyfutures.com/.