Since the January 4 year low down at $4.35 CZ had a nice 82 cent rally, capped off at $ 5.17 back on April 9th, which was an 8-month high. Round about those highs a couple of “well respected’ grain brokers started touting 5.50 corn and assured their clients that 5.00 corn was a thing of the past.
That alone, in my opinion, was a glaring sell signal.
First, note the blue trend-line. If CZ14 is unable to settle above that trend line, that is bearish technically.
Secondly, the 100-day moving average co-incides with the 50% retracement of the 82 cent up move. That 82 cent up-move unfolded over 60 trading days, beginning on January 4th’s 4 month low and extended until the April 4th 8 month high at $5.17.
Last Friday, we got to a high of $5.14 3/4 but we could not challenge that 8-month high at $5.17, and in the last 4 trading sessions, we have now fallen 25 cents and today posted a 6-week low settlement.
Trend following/ managed future funds are long an estimated 260K contracts of corn.
In my opinion, if that 100 day average/ 50% Retracemnt does not hold fast, you might have these funds liquidate up to 1/2 of their long position, if not up to 60%.
A 62% retracement gets us down to $4.67.
Remember, if you are a hedger and if you don’t want to cash forward sell, you have to set hedges when we get 82 cent rallies.
A market tends to drop and lose value 3 times as fast as it takes to make a rally.
In my opinion, that’s true for any market, grain, gold, stocks, houses, collector cars. etc….
When the buyers dry up, price can drop pretty damn fast, and that’s why people make bad cash sales on lows. They panic.
Setting a hedge (either with a futures contract or an put option) is a substitute sale for your physical grain production.
CZ14 chart above shows how the market took 3 months, or 60 trading days to gain 82 cents, but only 7 trading days to lose 38% of that rally. Human nature gives us this price action. So, realizing that, you have to be proactive in these markets.
Pretty soon, if CZ takes out $4.66, those same “market mavens” will undoubtedly be telling anyone who is still listening something along the lines of ” Oh, we had a sell signal back on such and such a date and we were actually short”, or worse, they’ll tell their clients who are long to double up to catch up. Either way, if you are working with someone who is creating more problems for you than they are solving for you, you may owe it to yourself to seek some more objective advice.
After 30 years of watching and trading these grain markets, I know first hand how un predictable these markets can be. A trader or a hedger needs to constantly be aware of the battle between the desire to be “right” over powering the greater goal of making $.
On the flip side, since it will be a long marketing year and we will get at least 2 weather scares and 2 attempts to “kill the crop”. Breaks such as these give good opportunity to buy cheap calls on bushels you have already sold forward.
Balanced hedging is the key unless you have an infallible crystal ball.
CER