Corn prices have started to grab the attention of commodity traders as wet weather and an early winter have started to act as catalysts for rising prices. Unfortunately for the bulls, it appears that any sort of rally may only be temporary and that another move lower could be in the cards. As you can see from the spot price below, the price is nearing the resistance of a multi-year trendline that has prevented any sustained moves higher since mid-2012. From a technical perspective, the recent bounce off the trendline will be used in combination with the bearish crossover shown on the MACD indicator, which acts as confirmation of the next leg in the trend. To make matters worse for the bulls, the long-term resistance of the 200-day moving average (red line) is also acting as a ceiling to any significant move higher. (For more, see: Commodities: Corn.)
Trading Falling Corn Prices
One of the most popular ETFs for trading corn prices is the Teucrium Corn fund (CORN), which provides investors with unleveraged direction exposure to corn without the need for a futures account. The fund consists of positions in several corn futures contracts spanning several delivery months that are traded on the Chicago Board of Trade. The fund is available to retail traders for an expense ratio of 2.75%.
Taking a look at the chart, the fund tracks the spot price of corn very closely and the bearish MACD crossover and declining RSI values are suggesting that the downward momentum is likely to increase. It's important to mention that this is a popular product for traders who want to increase their exposure to the volatile corn prices through the use of leverage.
Legal Battle Over GMO Corn-Seeds
In recent news, Archer Daniels Midland Co. (ADM), one of the largest corn processors in the world, sued Syngenta AG (SYT), a Swiss seed-and-chemical company, over losses from the sale of genetically engineered corn that has yet to be approved in China. According to a Wall Street Journal article, U.S. corn exports to China plunged 87% to 189,000 metric tons in the first nine months of 2014 compared with a year earlier. According to the article, “lawsuits by farmers have been filed in more than 10 states […] the farmer lawsuits, some of which are class-action status, estimate more than $1 billion in losses for U.S. crop producers due to China’s refusal to buy U.S. corn after the first cargoes were rejected late last year.”
Taking a look at the chart below, you can see that falling corn prices combined with the negative press of pending legal battles have put pressure on the price of Syngenta. Most bullish traders will likely remain on the sidelines until underlying corn prices stabilize, the legal situation is resolved and the stock price is able to move back above the resistance of the descending trendline and the 200-day moving average. (For more, see: Support and Resistance Basics.)
The Bottom Line
The price of corn has fallen nearly 60% since its high in 2012, and despite a recent bounce higher, several key resistance levels are suggesting that the downtrend is likely to continue. Many active traders will likely turn to the Teucrium Corn fund as one way to gain exposure to underlying corn prices. Risk-seeking traders may even want to research the various option chains that are available as a method of increasing leverage. Lastly, falling corn prices combined with weak demand from China because of the sale of genetically engineered corn that has yet to win approval from the Chinese government may continue to dominate the price action of key players such as ADM and Syngenta, so bullish traders may wish to steer clear until the prices of the shares are able to move above key resistance levels. (For related reading, see: Investing Seasonally in the Corn Market.)