Tag Archives: corn

How to Profit from Corn’s Pre-Planting Rally

The corn market doesn’t get a lot of hype in the news except during years of extremes. It’s a shame really, because the corn futures market is one of the world’s biggest and is dominated by the hedging activity of domestic farmers and producers battling it out over the smallest edge of profits at the margin. Following the battle between these domestic behemoths is a wonderfully anticipatory data stream for successfully trading a market that’s small enough to be accessible to the retail trader but large enough to capture the world’s attention and usage. Here is how we employ the Commitment of Traders report in conjunction with technical and seasonal analysis to stack the odds in our favor.

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Commodity Based Stock Play

Our business focuses on the commodity complex. We rely on the Commodity Futures Trading Commission’s (CFTC) Commitment of Traders report to sort out what the major players are doing in the commodity markets. Our focus lies with the commercial trader category of this report. These are the traders who either have the commodity to sell or, will be using the commodity in their manufacturing processes. Following the commercial traders category, as a whole, for a given commodity can provide us with a consensus opinion from the world’s largest producers and end users of a commodity. There are times, like now, when their collective actions in the commodity markets can pay direct dividends to equity traders, both in individual stocks as well as commodity based ETF’s.

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2015 El Nino and the U.S. Grain Markets

The National Oceanic and Atmospheric Administration (NOAA) has repeatedly stated the growing case for the 2015-2016 El Nino event. While much has been discussed in the headlines, very little of the conversation has focused on the commodity price impact that the most significant El Nino weather pattern since 1997 could have on U.S. crops. This week, we’ll begin our look at how the U.S. grain markets performed during 1997-1998 El Nino and continue this line of thought through the global grain markets next week before finishing this segment with a look at El Nino’s impact on energy prices.

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Corn Rally Stalls Short of $4

The corn market has found some harvest strength. We first suggested this in, mid-October in, “Commitment of Traders Report to Turn Positive in Corn Futures.” Our tone has changed recently as reported in, “Corn Rally Stalls on Commercial Selling.” The CFTC’s Commitment of Traders Report shows that the area between $3.60 and $3.80 was heavily traded among the commercial traders. Based on our experience, the price levels that previously acted as support will now act as resistance. Commercial traders have a habit of reverting to the mean. This behavior should result in enough commercial selling on this rally to offset the long hedges that were initiated on the way down, thus providing enough selling pressure to cap prices near these levels.

It turns out that, like last week’s Bond market trade, the corn futures market wants to do it on its own timing. Like the Bond trade, the corn trade is a big picture trade. Therefore, the initial timing isn’t as important as its continued monitoring for opportunities.

Thanks to Friday’s trade, the opportunity is here.

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Corn Rally Stalls on Commercial Selling

The corn futures market has rallied about 15% off of its lows while following its typical seasonal harvest pattern. We had some serious concerns about how oversold this market had become and wondered if it may even breach the $3.00 per bushel level. Obviously, the market hasn’t fallen below $3.00 and the market’s decline was fully supported by long hedgers looking for bargains below $3.60 per bushel. Long hedger support and the oversold nature of the market put us on the buy side for the recent rally which you can see on the chart below. However, as the market has rallied, so to have commercial traders’ expectations changed.

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Weekly Commodity Strategy Review 10/17/2014

What a crazy week this has been! Nearly a 100 point range in the S&P 500 and more than a 4.5% range in bonds!

Quantitatively speaking it’s been a pretty quiet week in our trading. The cocoa trade we discussed in TraderPlanet has consolidated throughout the week. The consolidation does allow us to adjust our stops accordingly as well as provide an additional point to add on to the trade once it starts moving in our anticipated direction.

You can recap the details in, “Commitment of Traders Report Supports Cocoa.”

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Corn Harvest Through the Commitment of Traders Report

My favorite part of this business has always been analysis. Whether programming something in Tradestation, building a spreadsheet or good old pencil and paper. Years of hand drawing charts finally allowed their nuances to sink in despite my stubbornness. The result of this is that I still do a lot of manual scanning of markets. There are times when a line of code will alert me to certain criteria. Many times, however it’s the human eyeball that eventually begins to compare a current set of visual data points recognized from the past and can extrapolate that into a projected set of assumptions into the future. We’ve had our eye on the corn market’s decline towards $3.00 per bushel not so coincidentally timed with the October 10th USDA World Agriculture Supply and Demand (WASDE) report. In doing so, we’ve discovered a very particular type of behavior in the Commitment of Traders reports among the commercial trader category in corn futures this time of year. You can see the fully mechanical results of our approach in these equity curves.

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Soybean Analysis for TraderPlanet

The corn and soybean futures markets have both followed the same paths this year and both markets are seeing substantial commercial trader support. The primary reasons for the strong commercial buying in in these declining markets have been high cattle prices and the unexpected decline in the US hog population. We discussed the details as well as the current Commitment of Traders Buy Signal this morning in November soybeans in this piece for TraderPlanet.

You can see more of our analysis published for TraderPlanet and others at COTSignals.com.

COTSignals Recent Trades

Strong commercial trader buying in soybean futures supports $10.00 low.
Strong commercial trader buying in soybean futures supports $10.00 low.