The price of corn has risen almost 25% this year on concerns of a potential supply shock as a result of tensions between Ukraine and Russia as well as delayed planting in the US because of the unseasonably cold weather. The US and Ukraine are the first and fifth largest producers of corn respectively and declines in supply from these countries can have a big negative impact on the grain’s price. As of today the price of corn is $4.78 per bushel but just two years ago it was almost twice that at $8.50. The decline in price has been because a rise in global production particularly from China has increased supply over demand for the commodity. It now seems that the anticipated negative impact on global supplies from production in the US and Ukraine may not be as bad as initially thought. On May 9th, in it’s monthly WASDE report, the US Department of Agriculture hiked its forecast for global corn inventories for this season and forecast a further rise to a 15-year high for the 2014-15 season. The USDA expects decreased corn supplies from Ukraine, Brazil, India and South Africa to be mostly offset by increases in production for China, Argentina, Russia and Mexico. The agency also expects higher crop yields will offset a reduction in the number of acres of corn that are planted in the USA. The price of corn has recently failed to hold above $5 per bushel just beneath a long term down trendline and has broken below a short term up trendline. This price action as well as an RSI bearish divergence point to a potential trend-reversal lower. Daily line chart for cash price of corn, supplied by CMC Markets, 16-5-2014 If corn is to maintain its trend higher this year there would need to be a sustained move in price back above $5 per bushel but with better crop yields in the US and no war in Ukraine, the price of corn could be set for a collapse. CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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