Two Bullish Corn Charts in a Bearish Market

This is a sample entry from John Payne’s newsletter, This Week in Grain.

As a reader of TWIG, I hope you have come to understand my major objective to inspire ideas so you can hedge or trade these grains markets on your terms. Lately, I have been asked by producers why it would make sense to re-own. Today, I am going to step out of my bear costume and put on my bulls jersey. Maybe I can inspire an idea or two to get you involved.

There are two charts that make me nervous being a bear. The first is the COT data. As you can see below, the funds are now short corn. They have not been this short corn at any point over the past 7 years. I know there is no story right now, but let’s see if we can find one.

cornfundpositions

The chart above shows us the potential that exists in the corn market, should there be a story. Any time I look for a bullish commodity story, I am going to one place…China.

Below is a chart of the China’s corn imports and then the expected Chinese consumption vs production numbers. Past performance is not indicative of future results, but with that said, each of those years in 1997,2000,2001,2002,2003 and 2004 all saw significant rallies (double digit percentage) throughout that year’s growing season, most coming from post planting. So while I remain bearish of the crop coming out of the ground right now, I would not be getting too oversold on 2014 corn and try to see some validity in wanting to re-own some sold production for this year. All we need is a story.

chinacorn

The short term picture is not rosy at all, but based off of the two charts above, the potential for a short covering rally exists. Remember, trading is about predicting where the market is headed, not where it is. The bearish data that we all hear and follow is being priced in. And while we do not believe there is to be a substantial rally in the cards soon, the potential definitely exists for a rally sometime after the US corn gets planted. If I were looking to re-own, I would get away from the front month and use the May or July contracts.

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About John Payne

John Payne is a Senior Futures & Options Broker and Market Strategist with Daniels Trading. He is the publisher of the grain focused newsletter called This Week in Grain, along with being a co-editor of Andy Daniels’s newsletter, Grain Analyst. He has been working as a series 3 registered broker since 2008.

John graduated from the University of Iowa with a degree in economics. After school, John embarked on a 4 year career with the United States Navy. It was during two tours in Iraq and the Persian Gulf where John realized how important commodities are to the survival of society as we know it. It was this understanding that brought about John’s curiosity in commodities. Upon his honorable discharge in 2007, John’s intense interest in the world of commodities inspired him to move to Chicago and pursue his passion in a career in the futures arena.

After a three year position with a managed futures firm specialized in livestock trading, he was given the opportunity to join the team at Daniels Trading. Being in the business and seeing how other IB’s operated, it was the integrity and straightforward approach of the Daniels management team and brokers that attracted him to make the move. Since joining Daniels, John has broadened his fundamental and technical analysis of the markets even further. John has been writing his newsletter This Week in Grain under the Daniels banner since 2011.

Working in high pressure industries like the military and capital markets, John has learned the value of preparation in times of stress. He believes that instilling within his clients the value of a good plan and a cool head for dealing with the day to day swings of commodity markets. He treats every client as a teammate, understanding that his job is to help clients achieve their goals, whatever they may be.

John is a proud supporter of the Iraq and Afghanistan Veterans of America, the Veterans of Foreign Wars and the National Corn Growers Association. When he is not working, he enjoys athletics of all kinds and spending time with his wife and their two kids.

John’s commentary is featured in the following publications:

* All Ag Radio – Sirius Channel 80
* AM 880 KRVN – Lexington, Nebraska
* RFD TV
* Wall Street Journal
* Barron’s
* China News Daily (English version)