Online Trading Education

The Grain Elevator is Full — Is it Going Down to the Ground Floor?

The Grain Elevator is Full
Geoffrey A. Smith, DTI’s Chief Instructor

What doesn’t have corn, wheat, or soy in it? These three grains make up the bulk of the world grain market. After peaking out a couple of years back, the grains have been declining the past couple of years. Droughts around the world shot the prices up. Soybeans were selling above $17 a bushel, wheat was above $9, and corn was above $8 a bushel. From these prices, corn has dropped 62%, wheat has dropped 50%, and soybeans have dropped 51%. Both soybeans and corn have had record crops this year and last. Contrary to many analysts who thought corn was going to be up last year due to less acreage planted, the weather was perfect for production, and therefore a record harvest. Even with drought ridden Western Kansas (the largest wheat producing state), late spring rains helped increase the output of wheat. Globally, grain production is up, even with China increasing in wheat feeding. The largest increases were seen in Ukraine and the European Union.

Utilizing DTI’s RoadMap™ market analysis software, below is a weekly chart on corn with a 3-week (blue line), 21-week (red line), and 65-week (pink line) simple moving average. You can see since May of 2013 that corn has been below the 65-week average. This is very bearish. That average now sits at 438. Earlier this year, corn rallied up to the 65-week average, failed to break it, and went to new lows. Until the 3-week average breaks above the 21-week average, look for selling opportunities. The trend reverses when the 21-week average breaks above the 65-week average. We are passing this year’s harvest, and will begin to look at next year’s harvest. Will it be bigger yet again, or will there be a smaller crop? Only time will tell, but keep an eye on the big picture and it will keep you on the right side.

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Good luck trading!