wmeubank@ocp.kcmo.com
COMMODITY REVIEW AND OUTLOOK
195 Route 6A, Suite 6, Orleans, Massachusetts
(October 23, 1997) CORN: SHORT TERM–Fund buying took center stage again in the corn. There was talk that yields in Iowa have not been as good as hoped. El Nino talk also surfaced again. Farmers remain tight holders and reluctant sellers of corn. Rain also provided support. However, on the negative side, the rain will undoubtedly cease and harvest will continue. Also worrisome is the reappearance of the Chinese export story. Until harvest is near complete, be cautious regarding buying strength. However, I suspect that weakness is a buying opportunity. El Nino fears and fund buying may continue to support this market, especially after the recent selloff. What was important in the last grain report was not so much production as ending stocks, which are very tight. Much higher corn prices appear possible. I remain very bullish corn, and traders should begin to focus on this trade.
A thought, if not a concern that comes to mind as I watch the market move higher, is that this could be a year in which we price in too much, too soon, and the move stalls out. I described the differences between a realizing bull market and an anticipatory bull market several weeks ago. This could be anticipatory. Making new highs at harvest is not common. Further, Dec., 98 seems to be encountering buying also. It has made new highs, while the nearbys have not. This implies quite a bit of buying in advance of a problem that may not occur. There may not be much fallout from El Nino, and there may not be a drought next summer. If you believe in long-term forecasts, then you've never planned a vacation wherein the weather was important. Many a slip twixt cup and lip, as they say. It may be that we'll price in most of the problems very early in the game this year. When all else fails, trust what the price is telling you.
RESISTANCE–Resistance basis Dec. is near 295, and 298.
SUPPORT–Support remains near 289-290, 286, 278-282, 272-274, 266-268, 262, 264, 258, 252-255, 248.
RECOMMENDATION–I suspect that funds are waiting 10 deep to buy corn on a break, so extreme downside may be only a pipe dream. If you have deep pockets and are a long term trader, consider lightly buying 2-5 cent dips from current levels with the idea that a future selloff is a buying opportunity. Aggressive traders might also buy either the 290 or 286 level with stops of 3-5 cents or under 282. There is still potential for a decline to the low 270's, so conservative traders could hold out for a decline to that level. Option traders might buy Mar. 280, 290, or 300 calls on 2-5 cent dips from current levels, or if more conservative, hold out for a decline to the mid-low 270's. Experienced option traders might buy Mar. or May calls and sell Dec. calls for the time premium.
M. Steven Morgan
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