Corn has been a touch subject for many traders. I see a lot of traders posting their attempts to trade corn on Twitter, some have been successful others…not so much. Most have a gut reaction to think it has come too high too fast and still have the visual of when silver got up to $43/oz. before crashing to $29/oz. in a matter of days last year.
The drought being experienced in the Midwest has been awful, and as an Indiana resident I can attest to the number of 100+ degree days we have been having in Indianapolis. Below are some charts I’ve pulled from the USDA to show just how bad this year’s corn crop is.
First up we need to determine where most of the corn has been harvested in the past so we can zoom in to those states. Below is a chart that shows the number of acres of harvested corn in 2011.
It appears Iowa and Illinois were the largest harvesters of corn last year. So next let’s take a look at the current crop. Below we can see the progress of corn in Iowa. The top panel shows the percentage of crop that is good to excellent condition compared to previous years, 2012 being the red line.
And we are seeing similar weakness in Illinois…
Although the corn crop this year appears to be the worst at least through 2008, the price seems to be showing signs of potential weakness.
First up when looking at the price action in corn, I’m noticing that momentum (as measured by the RSI indicator) has been practically stagnant, making slightly lower highs but finding support near the 67 level.
Second, we will look at the bottom panel, the money flow index, which takes into account both price and volume. The MFI indicator has been creating a negative divergence for a few weeks now, but just recently it has taken out its previous low which completes the bearish divergence, as per the criteria laid out by the indicator’s creators, Gene Quong and Avrum Soudack.
Third, volume has been trailing off, setting lower highs while the price of the corn ETF rose and then has initiated some sideways action. Also notice that today’s attempt to stay above $50 was done on anemic volume.
The reason I started this post with charts from the USDA which shows the dire condition the corn crop has been in, is to remind readers that when it comes to commodities there is more to performing due diligence than JUST looking at the chart. However, while conditions seem to be worsening (we had another 100 degree day today in Indy as a matter of fact) the chart of corn appears to be showing some signs of exhaustion. It all comes down to which will traders give more credence, the crop reports or the chart?
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.