The growing season is in full swing. As hot and arid conditions across North America continue to dominate conversation and market fundamentals, it is natural for investors of all types to take look for ways to increase exposure specific agricultural commodities.
At the moment, corn is of specific interest to many traders because factors such as rising export demand, positive corporate earnings, and tighter-than-expected inventories have sent prices of corn higher over the past several weeks. In the paragraphs below, we'll take a closer look at several charts that are commonly used by active traders when looking to profit from a rise in corn prices.
- Hot and arid weather conditions across North America have triggered concern over the health of crops such as corn. Heightened export demand is also factoring into rising corn prices.
- The long-term trend reversal shown on the weekly chart of the Teucrium Corn Fund (CORN) suggests that corn prices could be headed higher.
- Top players in the agribusiness sector such as Archer-Daniels-Midland Company (ADM) and Bunge Limited (BG) could be the primary focus of traders over the weeks ahead.
Teucrium Corn Fund (CORN)
For sophisticated traders, the purchase of corn futures contracts is the asset of choice due to the leverage and inherent type of commitment of buying or selling a particular commodity at a predetermined price. For retail traders who don't have a futures trading account, interest in leveraged speculation, or willingness to take delivery of physical corn, the most prudent asset to consider is the Teucrium Corn Fund (CORN). This exchange-traded fund (ETF) is a cost-effective way for retail investors to gain exposure to corn futures without the risk of holding leveraged contracts.
Looking at the long-term weekly chart below, you can see that the long-term trend bottomed in 2020 and has been on the rise ever since. Price action in 2021 has sent the 50-week moving average above the 200-week moving average, which could be used by long-term traders to mark the beginning of a prolonged move higher.
Looking at the daily chart shown below, you'll notice that a short-term triangle pattern has formed over the past several weeks. The continuation pattern will likely be watched by technical traders. Buy orders will most likely be placed near the upper trendline, while stop-loss orders will likely be placed below the combined support of the lower trendline and the moving average. Some traders may choose to anticipate a move higher by placing buy orders near current levels to maximize the risk/reward.
Archer-Daniels-Midland Company (ADM)
When it comes to trading changes in corn prices, one of the companies that most traders turn to first is Archer-Daniels-Midland Company (ADM). Founded in 1902, ADM is one of the dominant players in agriculture commodities, products, and ingredients. Recently, the company reported an almost 52% increase in second quarter profit due to strong export demand and improving margins.
Looking at the chart below, you can see that the price of the stock has been trading within a major uptrend since the bottom in March 2020. With the announcement of positive earnings, the recent retracement toward the 200-day moving average will likely be looked at by traders as a buying opportunity because this key moving average is often an extremely strong level of support.
As confirmation of a likely bounce higher, traders will most likely want to note the bullish crossover between the moving average convergence divergence (MACD) indicator and its signal line. The relative strength index (RSI) has also moved above 30, which is significant because it suggests that the stock is no longer oversold.
In summary, the proximity to the support level combined with signals on the MACD and RSI suggest that the price of Archer-Daniels-Midland stock is poised for a move higher. From a risk-management perspective, stop-loss orders will most likely be placed below $56.00 in the event of a sudden shift in company fundamentals.
In technical analysis, confirmation refers to the use of an additional indicator or indicators to substantiate a trend suggested by one indicator. Since technical indicators are not perfect predictors of future price movements, a trader often feels more secure deciding to act on a signal if more than one indicator is sending the same signal.
Bunge Limited (BG)
Another dominant player in the agricultural commodities space is Bunge Limited (BG). As a rival to Archer-Daniels, it is not uncommon for traders to also look to Bunge for clues about the underlying market fundamentals and potential direction of the broader agribusiness sector.
Looking at the chart below, you'll notice a similar pattern to the one shown on the chart of ADM. The retracement toward the key 200-day moving average combined with bullish signals on indicators such as the MACD suggest that Bunge's share price is poised for a bounce higher. Again, stop-loss orders will likely be placed below the 200-day moving average to protect against a sudden shift in market sentiment or fundamentals.
The Bottom Line
Agriculture commodities such as corn have been the focus of many active traders over the past several weeks due to factors such as weather conditions and increased demand. As prices of key assets such as the Teucrium Corn Fund, Archer-Daniels-Midland, and Bunge trade near major levels of support, it is reasonable to expect the lucrative risk/reward to draw the attention of even more traders and for prices to bounce higher over the weeks ahead.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.