• Dec24 is testing support at the round number of $4.20, though its recent plunge to a low of $4.13 leaves the door open to a closer test of $4.10.
• Historically, $4.20 marks the lower 33% of December corn futures, based on weekly closes only back through 2019.
• The previous long-term sideways trend from late 2014 through late 2020 had a high end of roughly $4.20.

Back in my early days as an analyst/commentator, I figured out one did not use the terms “friendly” or “unfriendly” to describe markets, reports, weather forecasts, etc. as it implied bias. My thought was if one wanted to be taken seriously in this business, they needed to stay unbiased. It would be better to say “bullish” or “bearish” because what may be “friendly” to one person (e.g. producer) may be “unfriendly” to another (e.g. end user), while bullish or bearish are universal. What was I smoking? Particularly in the world of agriculture where the majority only listen/read the opinions of those who tell them everything is always bullish, or “friendly”, regardless of reality. With that in mind, I’m going to tackle one of the most-asked questions these days: Has the December 2024 corn futures contract (ZCZ24) become “friendly” (bullish for those grownups in the room) near $4.20? 

There are a few reasons why $4.20 could be viewed as support for Dec24 corn. Let’s start with the more obvious: Corn’s characteristic Round Number Reliance. After moving to the Corn Belt two decades ago, and spending most of my time studying the various aspects of the market, I observed one constant in corn was its tendency to move toward round numbers in search of support and/or resistance. On Friday, June 28 we saw Dec24 fall to a low of $4.13 before closing one toke over the round number line at $4.2075, still down 13.0 cents for the day, 32.5 cents for the week, and 46.25 cents lower for the month. Since then, Dec24 has yo-yoed back and forth across $4.20, the door still open to a closer test of $4.10.

Back when I was a young-ish grain merchandiser in central Kansas, I worked with a research group to put together my initial price distribution studies. My goal was to answer the age-old question of where the upper-third (theoretical selling opportunity) and lower-third (theoretical buying opportunity) prices levels were historically, to use as a filter (Newsom’s Market Rule #3) for possible hedge strategies. I used weekly closes only (what would turn out to be a combination of the Wilhelmi Element and Goldilocks Principle) and tested a number of timeframes (e.g. 5-years, 10-years, 20-years, etc.). These days I use a 5-year distribution study, mostly, to show the percent of time a market closes weekly above certain price levels. What jumps out at me with December corn, going back through 2019, is the lower 33% starts at $4.20. However, we see the 5-year range dips down to near $3.20, meaning there is a chance support at the 33% level could still go up in smoke.  

Another interesting aspect of the corn market I noticed over the years is that it likes to spend long periods of time trending sideways. I recently talked about how corn is the commodity complex equivalent of the bond market meaning it can be relatively boring while following its expected patterns. I’ve talked a number of times about the similarities seen in the 2010 to 2014 and 2020 to 2024 timeframes, but what happened after the fall of 2014? A look at the long-term continuous monthly (Dec-only) chart shows December futures moved from a strong downtrend to a drawn-out sideways pattern between roughly $3.20 and $4.20. The high end of this range was clearly taken out during the winter of 2020-2021 as December corn futures took a trip on a long-term uptrend toward the eventual peak of $7.6625 posted during May 2022. 

But what happens to the old sideways trend? Do we just forget about it? Prior to the US Energy Policy Act of 2005, December corn found itself in a long-term sideways pattern between roughly $2.00 and $3.00 before exploding to a high of $8.49 during August 2012. It was immediately after that high the market started coming down, eventually testing the high-end of its previous sideways range while establishing the low end of its long-term sideways pattern. Let me try to clarify this a bit. In his book Technical Analysis of the Futures market, author John J. Murphy wrote, “Whenever a support or resistance level is penetrated by a significant amount, they reverse their roles and become the opposite. In other words, a resistance level becomes a support level and support becomes resistance.”[i]

Fast forward back to 2024 and we see December corn sitting where it used to be considered high. Additionally, Dec24 is priced at the lower 33% of its weekly close-only distribution range which just happens to be the round number $4.20. A December corn-only trading fund could take a look at this setup and start to reevaluate the short futures position it has been in since the long-term sell signal given at the May 2022 close of $7.1150. Before the release of the latest USDA quarterly Grain Stocks and Acreage nonsense on Friday, June 28, implied volatility of Dec24 was calculated at 24.4%, still near the high end of its range. Recall Dec24 closed near $4.34 and its 420 put option was priced at 19.75 cents. With the expectation that Friday would see a likely spike in implied volatility before falling into decline for the season, the fund might’ve sold 420 puts for 20 cents or more. This would theoretically buy back short futures at the high-end of the previous sideways range ($4.20) while building a buffer down to the big round number of $4.00. These options spiked to a high of 28.0 cents before closing at 24.0 cents.  

After all that, is Dec24 corn “friendly” near $4.20? All indications are it could be. Throw in the fact funds already hold a large net-short futures position that likely grew this past week, and the stage could be set for the market to start to stabilize. Could it still take a hit? Certainly. Fundamentally, corn is still a weather derivative at heart so favorable weather could continue to put pressure on the market. Technically, though, the argument could be made for Dec24 to start building support in the $4.00 to $4.20 range.

Is that “friendly” enough for you? 

[i] 1986 edition, page 62