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10-30-2018 10:17 AM
Well for a moment or so on Monday, it really looked like the market was going to have some steam to the upside, but as the harvest has progressed and farmers got a better handle on what they need to sell this year, the supply side of the equation keeps getting heavier and rallies turn around pretty quickly. But at least the last few days prior to today gave the late-bloomers a chance to get some of their production put out at a decent price in the upper half of the $3.60s. I am glad I added to my short position, albeit only by a little, but would rather have seen one blow off top to allow me to improve my average position price.
But that was yesterday and we trade what's going to happen in the future, so let's see what the market is telling us today. We are in a range between $3.60 and $3.70 for the most part, and the $3.60 level remains important as a break of it very well takes us right down to the all important $3.54 level that must hold lest an avalanche of sellers shows up. On the upside, there are momentum indicators that are staring to look favorable, but the price, volume and open interest numbers extinguish any optimism quickly. The chart formation that is building is not encouraging, a potential head and shoulders pattern with a neck line at the $3.60 area which projects down to at least $3.42 if $3.60 is broken, and the still unfulfilled double top in the December futures that projects to $3.29.
So you see, if $3.60 is broken to the downside, there's a whole lot of bad news potential that opens up, and that's not a good thing for those waiting for higher prices to start placing their production.
From the middle of September until the middle of October, prices had an easier time going up than down. It seemed prior to yesterday that the same dynamic was building. But the reversal yesterday followed by lower prices today is not a good sign.
So my feelings remain the same. I would want about 40-60% of my expected production for this harvest placed already between $3.60 and $3.80. While I am still holding some back in case prices make a jump up, as each day passes and the down trades feel easier than the up trades, I am getting a bit more concerned that perhaps there isn't going to be that last spike higher. The fundamentals still favor over-supply, crop condition and harvest progress all are running consistent with the big crop that USDA has predicted. Producers should feel lucky that the market is spending as much time as it is in this $3.60 area, it easily could have broken to the downside already.
If I hadn't sold anything yet, or if I have sold lass than 40% of my expected production, I would want to take advantage of the market's willingness to continue to absorb corn at these levels, and I would get my sales up to at least the 40% bogey. That's a pretty easy trade, and if the market finally does make that last jump in price, that also is an easy trade to sell up around $3.85. The situation that will cause the most pain is a break of $3.60, and unfortunately for the producers, markets have a way of testing levels that cause the most pain. So if I had to make a guess right now, I think we have another test of $3.60, and this time we get through it. probably down to $3.54. If the stock market keeps dropping, that will add fuel to this fire. Whatever happens at $3.54 will dictate the way, I think that if we get there while in a head and shoulders formation, after the first test of $3.54 the market bounces back to $3.60 and then falls like a stone.
Now if we test $3.60 and hold, then we will be range bound for a while longer and there's little to get excited about.
In light of all this, the game plan remains the same. Be short in the $3.60s, get shorter in the $3.80s if you get the chance, save something for $4 in case a miracle happens, and be prepared for new lows for the year before the year ends.