Corn started the week off with several days of consolidation until it finally pushed through last week’s low today. While the week as a whole was not a victory for the bulls, I would say it’s also not a victory for the bears – more of a draw. At the time of this writing, Sept corn is trading around $5.41. The market may be getting ready for a possible bullish set up. Why do I say that? Look at the volume, open interest, and price (see Sept corn daily chart below). The price has fallen over the last week (although still trading in the “big picture” bullish range) volume has fallen and so has open interest. This generally signifies that the market is ready to strengthen and turn bullish as weak longs are pushed out of the market. Last week I warned “With that said be cautious as the large trading ranges could come back into play and easily push “weak” longs out of the market.” I believe that is exactly what we are seeing. In last week’s USDA Report yields were lowered from 179.5 to 174.6 which was below the range of estimates and is long term bullish for the market. Short-term technical indicators turned up for a bit but have mostly pushed into oversold territory another “tell” suggesting the market may be gearing up for something big. Any weather improvement at this point will have little impact on corn yields, the damage to yields has been done.
In a previous article I advised the key numbers to watch were $5.81 ½ on the upside and $5.19 ½ on the downside. I still believe a close above or below those points are key.
I would suggest using an option strategy to manage your futures position risk or an outright option strategy. Implied option volatility recently came down but is still relatively high compared to historical vol levels. You may want to incorporate some short options into your strategy in a calculated risk manner such as bull or bear option spreads. I have 25 years of grain market experience, please feel free to call me at 1-800-367-7290 for more details or to discuss in depth trading strategies. Also be sure to check out my past weekly grain market updates posted on our website.