Weak US exports and falling energy costs have reduced the appeal for renewable fuels which are largely made from grains and oilseeds. According to the U.S. Energy Information Administration, ethanol stockpiles have had risen by 751,000 barrels to 18.85 million barrels by 2nd January. This was the largest weekly rise in nearly two years. Corn prices have been coming down since the beginning of the year as low oil prices mean that demand from ethanol manufacturers is reduced. According to industry analysts, it is unlikely that ethanol manufacturers and blenders will be able to pay close to $4 for corn. This has put a damper on price. Furthermore, the recent rise in the price of corn is likely to encourage farmers to increase the acreage of corn. This would lead to an increase in supply over the year 2015 and put pressure on corn prices.
Price rallied 30% from the September low and has since hit a resistance at around 415’6, which was a weekly support in the Q4 2013. The price has reacted lower from the resistance and sits now at a minor support at 392. The outside reversal bar in the weekly picture took the market lower by almost 6% in one week and suggests that the corn price will be under pressure in the coming weeks. The Stochastics, MFI and RSI are rolling over from overbought levels.
The daily chart reveals how there was a rally from the 392 support, but the rally couldn’t penetrate the bottom of the rising regression channel. This created a lower high and confirmed that the uptrend is over. A lower high after the price has had a strong move lower from a resistance level tells about the balance of supply and demand being in favour of the bears. The levels close to the 38.2% Fib level (at around 380) could be significant support as it was a resistance in August 2014 and price pivoted at this level on 18th of August last year. When price moved higher from this level the last time (4th December), a pivot candle was formed and was followed by a gap opening higher. The current daily support at 392 coincides with the Bollinger Bands and the 23.6% Fibonacci level, but in the light of the price moving so strongly down from resistance and creating a lower high, it seems unlikely that the support will hold.
The potential increase in the acreage and the low energy prices suggest that Corn will be under pressure. The technical picture is weak with the price reaction lower from a resistance and creating a lower high in the daily chart. The first target level for short trades is at around 380, close to the 38.2% Fibonacci retracement level. This view would be negated by market moving above the latest weekly high 417. I look forward to seeing you in the webinars where I will teach you how to take advantage of trading opportunities that occur daily in Corn and other markets.
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Chief Market Analyst