Medium term
Trade view / 30 September 2016 at 5:25 GMT

Grains under pressure, with more downside ahead for corn

Managing Partner / Spotlight Group
United Kingdom
Instrument: ZCZ6
Price target:
Market price:

Buckle up everyone, this is the last day of the quarter. So markets may well prove whippy as positions are squared off in a bout of quarter-end window dressing. 

However, it is the fundamental story rather than the flow that ultimately shapes the market. In the case of grains, that means there is still some downside. The agricultural commodity space has seen soft. It has been led by sugar and orange juice, which have booked handsome returns, whilst grains and meats have struggled.

Let's consider grains. Take corn for example; it still has a little downside before you could say the tenor of the market will have improved. Certainly all the time based technicals are flashing deep red for “strong sell”.

Source: Spotlight Ideas. Create your own charts with SaxoTrader; click here to learn more.  

The International Grains Council (IGC) underlined disappointment at the European Union's cereals output, although it reported that the world grain harvest would set a record by an even bigger margin than previously thought. The IGC said that a downgrade of 3 mln tonnes to 1.03 billion tonnes in its forecast for world corn production in 2016-17 reflected downgrades in the EU and China, where "overly dry weather has affected crop prospects".

Farming in the EU has been under increasing pressure from the Black Sea region. Russia and Ukraine are poised to significantly grow their agriculture production. (Source: Global Grain North America Conference, July 2016).

The Black Sea region grain exports about 80 mln tonnes of grain. Compare that with an average of 30 mln tonnes of imports in previous decades. Put it this way: that is a 180-degree rotation of 110 mln tonnes, which has a bigger impact on markets than China could, for example.

The IGC has suggested that Ukraine has the capacity to double its agriculture production, while Russia may see its output increase by 40% in the next 10 years.

Corn Five-Year Chart:
Source: Spotlight Ideas

Management and risk:

I see the grains market as remaining under some pressure for the rest of the year. Even if the downside is restricted, it is still available for the investor/speculator willing to trade and deploy a reasonable stop.

Parameters: Corn Dec 16 (ZCZ6) US Cents/Bushel

Entry: Sell 328.75 US Cents/Bushel, at 0358 GMT

Targets: 325 ... 320 ... 316 ... 309 US Cents/Bushel

Stop: 341 US Cents/Bushel

Time horizon: Medium term

— Edited by Robert Ryan

Non-independent investment research disclaimer applies. Read more
SvsG SvsG
Hi Stephen, is this trade view still valid?
Stephen Pope Stephen Pope
I have not been stopped out ... so I am still in.
SvsG SvsG


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