Key indicators to watch for in predicting the future direction of corn prices
Regarding analyzing corn prices and predicting future trends, traders closely monitor several key indicators. These indicators can provide valuable insights into the factors that influence corn prices and may help determine whether we will witness a decline from current levels.
One important indicator to watch is the supply and demand dynamics of corn. An increase in global corn production and a surplus in supply can put downward pressure on prices. On the other hand, a decrease in production due to adverse weather conditions or increased demand from industries such as ethanol production can push prices higher.
Another indicator is the weather conditions in the two major corn-growing regions, the United States and Brazil. A prolonged drought or excessive rainfall can affect crop yields and corn prices. Monitoring weather forecasts and assessing their potential impact on supply can be crucial in predicting price movements.
Additionally, monitoring government policies and regulations related to corn production and trade is essential. Changes in subsidies, tariffs, or trade agreements can significantly impact corn prices, especially in countries heavily reliant on imports or exports.
Furthermore, monitoring the performance of related commodities can provide insights into potential price movements. For instance, tracking the prices of soybeans, wheat, and other grains can help identify intermarket relationships that might influence corn prices.
Finally, staying informed about economic and geopolitical factors is of significance. Factors such as currency fluctuations, inflation, economic growth, and political stability can affect corn prices indirectly by influencing demand patterns or trade dynamics.
Seasonal analysis
Source: Moore Research Center, Inc. (MRCI)
The September corn futures contract is often overlooked. Typically, when the July contract expires, most traders focus on the December contract. Technically September is a new crop month, but due to the majority of corn production being harvested after the September contract expires, traders put more emphasis on the December contract as the new crop futures contract.
Opportunities are still available in the September contract, and MRCI has revealed through their extensive research such a jewel.
MRCI has found that selling the September corn contract during the early part of the third week of July that prices have closed lower in the middle of the fourth week of July 14 of the past 15 years. Of the 15 years, six never had a losing daily close.
The above seasonal chart illustrates the September corn contract's 15-year average price (blue line). The vertical yellow box is the seasonal window. Seasonal pattern trades can be entered multiple days before or after the first day of the window. The trade exit may come a few days earlier or later than the optimized exit date. Traders should use their trading strategy near these optimized windows to time and manage their trades. MRCI does not offer trade recommendations, but they provide the research needed to help create an informed trading decision.
MRCIs editor, Jerry Toepke, provides this supporting fundamental information for why this seasonal pattern occurs so frequently. "As corn crop pollinates in early/mid-July, yield is determined, and the crop is made --- usually with little to stimulate a rally until after the harvest begins."
The recent sell-off related to two significant crop reports has pushed prices lower, and the RSI reveals that a slight rally is needed to find some overhead supply before this seasonal pattern resumes the current downtrend.
The Commitment of Traders (COT) report
Source: CMEGroup Exchange
In the first COT report, we examine the recent activity of managed money, the second largest participant in the futures markets.
To illustrate the current volatility of the corn market, observe the net positions (yellow line). The scale on the right side reveals their net positions. Between the upper and lower 100s is a hash mark that represents 0. When the yellow line exceeds 0, managed money is net long. They are net-short when the yellow line is below 0. Since February 2023, they have been whipsawed on both sides of 0 multiple times. Managed money typically uses trend-following strategies, and corn has been experiencing various punishing price reversals.
Source: CMEGroup Exchange
Now let's study the most prominent participants in the futures markets, the commercials. The yellow line now represents the futures price. Notice how the producers sold more contracts when prices rallied (red bars). And when prices were lower, they reduced their selling pressure (declining red bars). In the prior two price declines, the processors (end users of corn, blue bars) added new long positions. In the recent price decline, they were almost absent from buying. Could this be indicative of lower prices to come?
In closing
Traders have multiple products to participate in corn market speculation. The standard-size corn futures contract ZC, the mini-corn futures contract XC, Barchart symbol XN, and the Exchange-Traded Fund (ETF) CORN for equity traders.
A recent article, "Are Corn Prices Vulnerable to a Seasonal Price Sell-Off?" leading up to the recent corn price decline, may offer you more insight regarding the significance of seasonal analysis, especially in the grain markets.
On the date of publication, Don Dawson did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
