Technical market analysis seems to have been less reliable in the last couple of years than the historical norm. There were many flashing lights, however, in the middle of February indicating that there is at least a possibility, and some would say a reasonably high probability, that the corn market peaked in February.

The chart below shows what I am talking about. If you note the congestion area left in early January, many would depict that as a bull flag, which typically occurs halfway up the move from the last major reaction point. The center of that gap is at $5.50. The last reaction point in late November was at $4.76. That is a $0.74 difference which when added back to $5.50 gives you an upside objective of $6.24. As this is written, the high established on Feb. 14 was at $6.21¾. That’s close enough in hand grenades.

In addition, on Feb. 14 the market opened higher above the previous day’s high and closed lower with a key reversal down; also a sign of a market topping. The market gapped open lower on Feb. 15 and then closed below its major upward trend line, giving another indication that this market is peaking.

To add further harm to the bull argument, following the release of the February crop report note that markets gapped higher, leaving what appears to be an exhaustion gap at approximately $6.10 just four days before the key reversal top. This also is a concerning sign.

Bullish enthusiasm: To add fuel to the fire, on the fundamental side, carryover supplies in the February crop report were reduced to 675 million—the tightest in many years. This is a supply fundamental that can quickly be built into market prices and is well known. As I write this in mid-February, the market is trading lower than the pre-released prices of the February crop report. This is a strong indication that the tight carryover creates a shortage of $5 corn but not a shortage of $6 corn! Remember, markets always peak on bullish news.

Granted, one can argue that it “might not rain.” On the other hand, some argue it might rain too much, which has been much more of a problem for yields than too little rain since 1988—the last year a major drought impacted the national average corn yield. Corn seed is much more drought-resistant now and thus the drought argument carries less weight today than it did 20 years ago.

Looking ahead: No doubt this market is going to see substantial volatility in the months ahead. We estimate that this year’s planted acreage will be 91 million acres and with a slightly above-trend-line yield at 166 bu./acre, carryover will still not likely get back to the 1-billion-bushel level. The USDA is now in print at 92 million acres. This along with a normal yield will get corn carryover supplies back to a more “normal” level, and should that occur, $6 corn for new crop is much too high.

When combining the fundamentals along with the bullish enthusiasm of the public and the fact that everyone “knows” that the corn market has to go higher, technical sell signals in February may have much more validity than the bulls will want to admit.

Time will tell, but at a bare minimum, unless incredible weather problems occur during the growing season, this is a market that has likely made a top and at the very least is trading in the top 20% of the expected price range. Be very careful. Bull markets go down a lot faster than they went up.