As we continue our journey through the soft commodity markets, this month let’s take a look at Corn. This is a great market for those wanting to get into futures for the first time as it has a lower risk and smaller margins than most of the others.
Corn is part of the agricultural complex traded on the Chicago Board of Trade. This comprises the Grain markets, which also include Wheat, Oats and Rough Rice,( although the volume on these last two is pretty thin and so not as good to trade). There is also the Soybean complex, which includes Soybeans, Soybean Oil and Soybean Meal.
Corn futures have been around since the 1800’s and W.D. Gann covered this market extensively in How to Make Profits in Commodities and in Chapter 1 of the Commodities Course, entitled Speculation: A Profitable Profession. In those two works he covers the major swings from 1859 to 1954. ProfitSource picks up the data from 1959 giving us an almost unbroken record over 150 years.
The contract specifications can be found at the Exchange website – www.cmegroup.com.
Here we find that one contract of Corn contains 5,000 bushels and is priced in cents per bushel with a minimum fluctuation of ¼ of a cent. Thus, if we look at the most recent low on 6 July, the price of 604 equals 604 cents per bushel, or $6.04. The value of one contract would be 5,000 bushels x $6.04 = $30,200. The margin is $2,363 per contract, which equates to around 8% at current prices. There is also a mini-contract, which is 1/5 the size of the full contract (i.e. 1,000 bushels) and the margin for that is $473 per contract.
To find the long-term data in ProfitSource, use the C-Spotv chart. There has been electronic trading on the Globex platform since 2001 and this can be seen using NC-Spotv. The latter includes the pit or open outcry session (9.30am-1.15pm Chicago time) as well as the electronic session (6.00pm-7.15am). Thus Corn trades 17 hours a day, somewhat less than a lot of the futures markets.
For those in eastern Australia, currently these times equate to 9.00am-10.15pm for the electronic session and 12.30am-4.15am for the pit session. Be aware that these times will change when the US goes off Daylight Saving and again when Australia goes onto Daylight Saving (for those states that do so). Like the SPI, the majority of the traded volume occurs during the pit session, so you need to keep an eye on both the C and NC charts.
There are five yearly contracts – March, May, July, September and December – although the December contract already has greater volume than September, so the Spotv chart will roll straight from July into December and will thus cover only four of the contracts.
Looking at the NC-Spotv chart, we can see that Corn recently made a double top at its all-time high of 799 cents per bushel.
Chart 1 – Corn Double Top
click chart to enlarge
This chart is very interesting. Both Gann and David Bowden emphasise the importance of watching the anniversaries of major turns for changes in trend. I have found that second anniversaries are sometimes even more important:
- On 27 June, 2008 Corn made its (then) all-time high;
- On 29 June, 2010 a big bull market started.
- In 2009 there was a top on the 2nd and 3rd of June with a third top just one tick (0.25 cents) lower on the 10th;
- On 10 June, 2011 the market made a double top with the 2008 all-time high.
Chart 2 reveals some interesting time harmony.
Chart 2 – Balancing Time
click chart to enlarge
The relatively muted ‘sideways’ market from the December, 2008 low to the June, 2010 low lasted 571 days. Half of this time period would be 285.5 days (say, 286). 286 days after the 19 June, 2010 low was 11 April, 2011 - the day when the bull run effectively ended (even though it made a false break higher on 10 June to make the double top). This was a balance of 50% of the time period between the lows. It may be a smart move to watch the full period, which will run out on 21 January, 2012.
Chart 3 – Daily Charts
click chart to enlarge
Chart 3 zooms in on the more recent picture on the daily chart. I have marked one more example of a balance of time on this chart, but there are others and it will help you if you spend the time to find them. The one I have selected also supported a double bottom and it is also worth noting that the most recent low occurred on one of Gann’s seasonal dates – 6 July.
The rally off this low has been strong and it will be important to watch how the market develops. Just because there is a double top at the all-time high does not mean the market has to change into a bear market from here. It can still break that top and go higher. Alternatively, you could watch the double bottom on 16 March and 6 July. If prices break below this you would expect further significant falls. Always follow the indications on the swing chart.
Knowledge is Power!