Corn is finding a floor

Corn prices have retraced an exact 50% of the rally which commenced in August 2020.

In the past few months, I have been writing about parabolic price moves and highlighting the risk of ‘going long’ at what seems the tail end of an advance which sometimes can resemble chasing a mania.

Albeit Corn is currently in a downtrend, my other indicators suggest that the strength of the decline is dubious. If Corn shoots below the 50% retracement mark, it should stop at the 50 Week Moving Average of $4.99.

That’s only a further 5.6%, following an already 28% decline from its $7.35 peak in mid-May.

Let’s not try and squeeze out the last kernel?

Perhaps it’s time to sell my equity holdings in Gruma (the tortilla and taco maker) and Kellogg. Their input prices may start rising again.

July 12, 2021
by Rob Zdravevski
rob@karriasset.com.au

Coming next: The great Corn unwind

The green line in lower chart tells us that number of ‘long’ positions held by financial speculators in Corn futures is at its highest since 1996.

Watch the correlation when the green line is barreling towards above than average heights and that of the highs being seen in the corn price…..and then see what happens to the corn price when the ‘great unwind’ occurs.

Incidentally, the red line in the lower chart show that producers (growers) are immensely net short. Meaning they are taking these forward prices as future payment. Of course they should.

If you a commercial participant in the corn market, it’ll be wise to wait a little longer before buying your corn. History and logic tells me you’ll get lower prices.

And today, Bloomberg have published this story;

May 6, 2021

by Rob Zdravevski

rob@karriasset.com.au

Corn on 3 year lows

English: Very First Corn Flakes Package: http:...

Very First Corn Flakes Package

Due to an expected record U.S. harvest, the price of corn has fallen to levels last seen in 2010 and at prices also seen in 2008.

What a contrast when compared to the spike in prices during the 2012 drought.

The price of corn has now fallen (on a weekly basis) at least 2 standard deviations below its mean on a weekly and monthly basis which covers the past 20 years.

When I look at its price on a quarterly basis, corn have reverted to its rolling mean over a 40 year period.

Supply must have increased significantly but our work suggests that demand remains steady, if not slightly higher, especially when accounting for animal feed usage.

The decline in price over the past 12 months has helped the share prices of companies such as Gruma (Mexican tortilla maker), Pepsi and Kellogg, while share prices of other beverage companies, namely Coca Cola have lagged their peers and index considerably.

Did you know that corn is used as a sweetening alternative to sugar in many drinks and many foods in the form of High Fructose Corn Syrup or HFCS.

If we look to buy some actual corn itself, its current price is $4.74 per (generic) contract renders it oversold, whilst support may be found 7-9% lower surrounding the $4.30 level but let’s not split husks over it.

Further reading: Litchfield, Ruth (2008). High Fructose Corn Syrup—How sweet it is. Ames, IA: Iowa State University Extension and Outreach. Retrieved 1 March 2013.

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