Corn May Top Record on Fibonacci Extension: Technical Analysis
The rally in corn prices fueled by the worst U.S. Midwest drought since 1988 may climb to a record $8.41 a bushel in the next two months, according to a technical analysis by Stewart-Peterson Group Inc.
Corn futures for December delivery, after the harvest, may jump 15 percent to $8.41 a bushel on the Chicago Board of trade, based on a Fibonacci extension of a four-week rally that saw the contract surge 45 percent, said Jacquie Voeks, a senior market analyst at the West Bend, Wisconsin-based agricultural advisory firm.
Prices advanced about $2.42 from a low on June 15 to today’s 10-month high of $7.49. The contract was at $7.3525 as of 1:09 p.m. in Chicago. A 38 percent Fibonacci extension from today’s high would imply about a 92-cent increase and may trigger new buying, Voeks said. The government on July 11 cut its corn-production forecast by 12 percent to 12.97 billion bushels and reduced its harvest-area forecast to 88.9 million acres, or 92.2 percent of what was planted.
“If harvested acreage falls to 89.5 percent of planted acres, that would cut the crop by an additional 400 to 500 million bushels,” Voeks said. “The charts point higher until it rains.”
About 40 percent of the crop in the U.S., the world’s largest grower and exporter, was in good or excellent condition as of July 8, the lowest for that date in 24 years and down from 77 percent on May 18, Department of Agriculture data show. In the drought of 1988, prices rose almost 67 percent from May 12 to July 5. A similar percentage move this year would project prices at $8.50, Voeks said.
In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in commodity prices.
Fibonacci analysis is based on the theory that prices tend to drop or climb by certain percentages after reaching a high or low. A break above resistance or below support indicates a commodity may move to the next level. The difference between high and low points on charts is divided into retracement levels based on ratios that were described by 13th century mathematician Leonardo of Pisa, known as Fibonacci, and correspond to proportions found in nature.
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