Getting Close To A Top

[rayfcom]

Hi folks in Corn Country USA, Merry Christmas to you and your families ! I hope you all have a wonderful holiday !

The corn market has been bullet proof this month so far, and even a crop report that was again bearish for corn prices could not get the market to sell off. 

But I think that is about to change.

The technical indicators are extremely overbought. The March 2019 contract has been going up for a month but with weak volume supporting the move. 

Feels to me like anyone who wanted to own corn has done so already at least for the winter months, and that at least some of them will be looking to take some profits very soon at a slightly higher price than the $3.86 we trade at now, midday on Tuesday December 18.

I have written that I thought March 2019 corn would trade up to the $3.90 to $3.98 area before coming back down. I am going to extend downward the entry point slightly, to $3.88. I think its a wise idea to more or less empty the bin at that level. I am half a position short now after rolling only a portion of my December short into March. I will extend that short position to 90% of a full short position if we trade up above $3.88, saving 10% in case we get the chance to see a $4 handle. The stop is still the same, the market needs to trade up and close above the old major high at $4.1225.

The down side of this trade could be quite substantial, but to be conservative I think our first objective will be the gap left on the continuous front month contracts down around the $3.58 to $3.60 area. If that is broken, its may get nasty. I'll deal with that if we get there.

Best wishes !

[clayton58]

So what do you see for December 19 corn?

[rayfcom]

Well that's a very tough question because a lot can happen between now and then. But in commodities, all ships tend to sink and rise together, albeit at different rates. So if we see March take a tumble out of overbought territory, I expect the rest of the complex will do the same. I don't know if the back months will move more or less than the front months, but it doesn't really matter because if you want to trade December 19's, just sell them when the March 19's get to the specified levels as written earlier, and when we get a buy signal in the March, cover the short Dec 19 position. 

Remember also that we remain in a long term bear market for corn until and unless we can settle above the last major high price in a front contract, which is now at $4.1225. So as long as the overall long term trend is down, all contracts should move lower over time from when they reach overbought levels. Having said that, if the last major high is not taken out between now and December 2019, that Dec 19 contract should be lower in price then than it is now., But a lot can happen between now and then, so I would not be all too keen on betting the farm on a contract a year away with an economy that appears to be at a cross road.

[giolucas]

Ray,

For the last couple of months you have been talking about price decay in corn and you have been short for a longtime.  Reality is that corn has gone up from the drastic lows you were predicting.  I know you want this market to tank because you will make money but I just want to know your exist plan if you lose more.  

On a side note:  Anyone in Lewistown or Canton, Illinois.  Please send me a private message.

A broken clock is right twice a day.

[futurestrader92]

Seasonal patterns show rising prices as we go through the new year and into the spring and summer months. What catalyst is going to cause prices to come down?

[rayfcom]

Well Gio, if we're going to have this conversation  let's deal with facts. And the facts are that two months ago I advocated building a short position in December Corn, with the first half of the position to be set in the mid-$3.60 to mid-$3.70 area. The second half of the position was to be set if the market got up to $3.85 to $3.90. I said my objective was to see a return to the lows of the year just under $3.30, and I would get out of the position if we settled the front Corn future contract above the previous major high front contract price of $4.1225. These facts are undeniable, my posts are available to be read on this website. 

Since that time, the December short position fell to a price below $3.60 before the contract expired, and I stated at that time that I had covered my short and rolled half of it into the March 2019 contract. I made about seven cents per each contract that I was short, which translated into a profit per contract of $350 on a margin requirement of $825 per contract. The March short position was set in the $3.70 area, and because I only re-set half of what I had in December, the profit from the December contract raised my short price in March to about $3.77. Since that time the March contract has traded in a range from $3.70 to $3.85. 

So I am short now at about the mid-range of where the March contract has traded since the December rolled off. I will sell more at $3.88 and above with the same stop loss. The result will be a short position in the mid-$3.80's for a move of 20, 40, 60 or more cents in my favor versus a risk of 30 cents. More than an even reward to risk. 

Sure, I would have liked to see the market move my way faster, but in reality I don't care when I get paid as long as I get paid. I know from the crop reports that there is a large amount of corn sitting in bins around the world, and I also know that the farmers who have corn in the bins will have to start selling it off before they plant next year's crop. I also know that the fund traders who might be holding this market up against the fundamentals at some point are going to start thinking about their bonuses, and if the market sits in a range long enough, they're going to liquidate. Because I don't have to give away 80% of my profits to the bank management or investors, and I don't need downpayment cash for loans to run my business as a farm would have to do, I can wait longer than the people holding out with long positions, so there's a good chance I am going to be paid for my patience.

So that's the real story. If you think that's a broken clock, I don't care. Better to be right twice a day than never, and both are better than to speak without knowing facts. I don't tell you how to run your business so why are you commenting on mine ? I have been saying the same thing all along and the market has yet to prove me wrong. If it does, then I will be wrong but until then, considering all the factors that determine corn prices, I have a feeling that you'll be helping to pay for the water in my pool next summer.

[giolucas]

Haha. Have a merry Christmas and happy new year.

[rayfcom]

As I have said before, I don't believe that seasonal patterns mean much save for when the fundamentals and chart patterns are neutral. And right now I think there are a number of reasons why corn is overpriced. 

First off, the market still has not reacted to the huge revision in Chinese stored corn. We have had two consecutive reports that say the Chinese are stocked up the wazoo in corn, yet the market still thinks the government is wrong. That will resolve over the winter as the expected Chinese buyers don't show up, and then you'll see the farmers storing corn start to worry. That's when they'll start selling because at about that time they'll be thinking of how much acreage they want to plant next season and how much of a loan they'll need, and where are they going to get the cash to qualify for the loan. 

Once the funds that are trying to push prices higher realize that the farmers are throwing in the towel. then they'll realize they're the wrong way, and they'll add to the selling. And after that, we'll get a negative employment report or housing starts will drop 5-10% or some other indicator will make clear that a recession has started, and commodity prices will start falling through air. Supply creates more supply, and at that point the corn will be coming out of the woodwork, much harder than it did last May. 

That's how I see things going. There are a lot of other scenarios that take us to the same place. If anyone thinks I am wrong, go ahead and buy the market up through the $4.1225 level and keep it there, and I will jump on the band wagon with you. Until then, if you're long you're wrong, and right now the market is giving everyone a great opportunity to sell. 

[rayfcom]

You too my friend, I hope Santa is good to you and your family.

All the best !

Ray

[roarintiger1]

I'm still not sure why anyone would believe any numbers that are put out by China.    There are definitely people out there that are slow learners.  They've played the U.S. markets like a fiddle for years and they are obviously pretty good at it.