Technically Speaking

'Tis the Season(al)

Source: DTN

What does the future hold for the 2015 December corn contract? That seems to be the number one question as 2014 comes to a close. A look at the seasonal index for Dec corn only shows some interesting possibilities, particularly if you add in the similarities to the 2010 contract.

I've set the 5-year seasonal index for December corn only (blue line) to cover the 12-month timeframe from the previous December through the contract's start of delivery the following November. If you take a look at the chart you might see a somewhat surprising seasonal pattern. Except for a minor hiccup in mid-May, the new-crop corn futures contract has tended to extend its uptrend through mid-June. Fundamentally this makes sense given the weather variable and uncertainty of the crop into early summer.

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However, an outlier of sorts was the 2010 December corn contract (pale green line). That year followed the record harvest of 2009 (I'll still call it a record with an asterisk, and keeping in mind we have yet to see the "final" 2014 production number from USDA) of approximately 13.9 bb. The Dec 2010 contract posted a rally through the second week of January, hitting a high weekly close of $4.49, before falling to a low of $3.61 in late June. Note that 2010 was a year of contra-seasonal moves, with the late June low followed by a strong rally to a high weekly close of $5.88 the second week of November. Keep in mind that 2010 was the first of three consecutive years Mother Nature showed her nasty side.

What's interesting about the 2015 contract (red line) is that it is so far, very early in the 12-month cycle, following almost step for step in the path left by the 2010 contract. Does this mean the Dec 2015 is getting set to turn down? Those of you following along with this blogs weekly updates know that it is becoming more likely given that the contract is sharply overbought (according to weekly stochastics) while testing technical resistance near $4.34. This price marks the 50% retracement level of the previous downtrend from $5.04 through the low of $3.64 1/4.

If weekly stochastics establish a bearish crossover in the coming days/week, indicating a move to a secondary (intermediate-term) downtrend, initial support is pegged near $4.14 1/2. This possible downtrend could last through the winter before showing signs of a bullish turn back to its ongoing major (long-term) uptrend in early March.

If this plays out the 2015 contract could break from both its 5-year seasonal index and the 2010 contract. However, if the U.S. actually sees the degree of reduced acres talked about early this winter and any sort of planting/growing season weather problems the contract would be expected to quickly reestablish an uptrend.

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