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Ag Marketing IQ: Here’s a technical analysis approach to where corn prices are headed now.

Jim McCormick, Hedging strategist

December 15, 2023

3 Min Read
Market chart with LED screen
Getty Images/iStockPhoto

The corn bear market is getting more entrenched as we wrap up the 2023 calendar year. I suggest this because of how the market has reacted during the contract delivery period.

In bear markets, the spot futures price tends to fall to where their previous front-month contract went off the board. The September 2023 futures contract went off the board at $4.62 1/2, with a contract low of $4.55 ¾ scored on the same day. The December contract went off the board on December 14 at  $4.56 ¾  after scoring a contract low on the first notice day of delivery at $4.47.

What’s next for prices

Without any significant surprises to either side of the supply or demand balance sheet, history would suggest March corn prices will work down to the same price zone that both the December and September contracts went off the board at as well. The market has built a 22 ¾ cent carry (March is trading at $0.22 1/4 cents higher than the December contract) to encourage producers to hold off bringing the bushels to market, but this premium will dissipate as time passes. March futures will drop to the same price zone at which both the December and September contracts went off the board.

If this bear market pattern stays entrenched into the summer, the 45-cent carry currently built into the market to store corn will disappear (and by the time the July contract is in delivery, it will be in the $4.45 to $4.0 zone). To lock in the carry, consider selling futures or a cash sale for a later delivery period. Put options are another way to protect the carry if you plan to hold grain in spring and summer.

Cost and risk to long-term storage

If you choose to hold corn into the summer, (besides the risk of the carry eroding), there is a cost of storing the grain. With the current cost of money due to interest rates, the cost can and will add up fast. The current interest cost of storing grain on the farm is estimated at 3 1/2 cents a month. Therefore, the interest on storing grain into next summer will easily cost you $0.24 cents in interest cost.

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Bullish hope

The technical picture does give bulls some hope as a potential head and shoulder pattern could be forming on the March contract. The left shoulder was scored on 11/13 at $4.76½. The head would be the low on 11/29 at $4.70 ½. The right shoulder could be forming if the market tests and holds the left shoulder low at $4.76 ½.

The pattern's neckline will cross at the 50-day moving average at $4.92 ½. We need to take this price point out to confirm the pattern. If this happens, the pattern projects the market could move to a $5.17 basis on the March contract.

Bottom line? If the head and shoulder bottom would come to fruition, we would encourage producers to take advantage of the rally to lay off risk.

If you have questions or would like specific recommendations for your operations, don't hesitate to contact me directly at 815-665-0461 or anyone on the AgMarket.Net team at 844-4AGMRKT.

About the Author(s)

Jim McCormick

Hedging strategist, AgMarket.Net

Before joining AgMarket.Net, Jim was a senior broker with a nationally recognized firm and has 24 years of experience as a registered commodity representative, servicing both commercial and individual trading and hedging customers. He specializes in hedging and trading strategies using combinations of forward contracting, futures and options for corn and soybean farmers and livestock producers. He has a Series 3 futures brokerage license and earned a bachelor’s degree in Agribusiness Management from Purdue University.

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