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Chicago Corn : A leap into the unknown

07/11/2012 | 11:12am
Opinion : Bullish above  0
Target price :  1000
The agricultural commodity markets have faced alarming difficulties this year and especially the corn market which has jumped 25% since the beginning of January. The main cause is the drought which persists across the U.S Corn Belt. Weather forecasts continue to frighten investors which make this market very special to trade.

In May, the U.S. Department of Agriculture (USDA) was expecting a record production for the period 2012-2013 with a surplus of around 150 million tons by the end of 2013. These figures are totally undermined by the conditions of production in the United States which represents 50% of global exports. Meanwhile, USDA has significantly lowered its estimate of quality for the harvest of 2012. Production is divided into four criteria: "excellent", "good", "poor" and "very poor". The share of annual production of best quality is down 7 points compared to 2011.

Unfortunately, it is already assumed that the United States will not reach the annual production of 34 million tons that the USDA had set. It seems that no other country is able to replace the United States while China would increase its grain imports by nearly 50% from 2011. Given these uncertainties, corn prices continue to soar to record levels.

Technically and accordingly to our previous analysis on 05/16/2012, the output of the USD 600/670 trading range caused a marked acceleration toward record highs located to the area of 780/790 USD. Given the special situation of corn production conditions currently in the U.S., the breakout of this long-term resistance which has been tested in 2008 and 2011 could lead prices to the unknown. They could reach 1000 USD in the near future. Instead, improving weather conditions could allow an easing of prices towards $ 700.
Chicago Corn : Chicago Corn : A leap into the unknown
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