Corn Swoon Returning on Moving-Average Break: Technical Analysis

A January corn rally that halted the longest slump in four years probably won’t last, after prices failed to hold above the 50-day moving average, according to Prime Agricultural Consultants Inc.

Corn futures for March delivery on the Chicago Board of Trade will drop 6.4 percent by the end of February from yesterday’s close of $7.2425 a bushel, Prime Ag President Chad Henderson said. Prices will retest the January low at $6.78, after dropping below the 50-day moving average on Jan. 22, he said. The $6.78 target also matches the 50 percent Fibonacci retracement of the contract’s rally from May to August.

“The market is looking weak with the series of lower highs and lower lows,” Henderson said by telephone from Brookfield, Wisconsin. “We advised farmers to sell more corn after failing to break downtrend resistance.”

During a Midwest drought that damaged crops, the March contract surged by $3.3525 to a record $8.4625 on Aug. 10, from a low of $5.11 on May 11. Since then, prices dropped for five straight months. While corn is up 3.7 percent in January, traders are increasingly focused on slowing demand from makers of ethanol and animal feed, Henderson said. Prices have failed to climb above a five-month downtrend line, encouraging consumers to wait for lower prices to extend purchases, he said.

Rain expected over the next two weeks will boost yield potential in Brazil and Argentina, the world’s biggest exporters after the U.S., Henderson said. Combined corn output in the two South American nations will gain 5.3 percent to the highest ever, the U.S. Department of Agriculture said Jan. 11.

“We are moving away from tight U.S. supplies to a more plentiful situation,” Henderson said. “There is no reason for farmers to hold one bushel of corn in storage.”

Fibonacci analysis is based on the theory that commodities and securities tend to rise or fall by specific percentages after reaching a high or low. In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a bond, commodity, currency or index.

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