Market Strategy

Corn and wheat ride on dry forecast

Yoganand D. | Updated on July 21, 2012 Published on July 21, 2012

Corn and wheat have been in the limelight in the past month as the commodities trend higher registering new peaks for the year. In the last week alone, wheat rose 12 per cent and corn surged nine per cent on forecasts of more dry weather during the next week in the US. . It is the worst drought in the US in 56 years.

Since the beginning of June, wheat has gained 46.5 per cent. In the same period, corn has increased 48.5 per cent. A similar rally was witnessed during June and July 2010. US government data show corn to be their biggest crop, valued at $76.5 billion in 2011. Wheat is the fourth-largest, valued at $14.4 billion, behind soyabean and hay.


Corn’s rally last week has emphatically broken through its long-term resistance at 765 cents and registered a new high at 828.7 cents on July 20. Long-term trend has been up for the commodity since taking support at 300 cents in September 2009. It is hovering well above its 50- and 200-day moving averages. As long as it trades above 500 cents, its long-term trend remains up and it has potential to reach psychological resistance at 900 cents in the forthcoming months. Corn has significant long-term support at 600 cents.

Medium as well as short-term trends are up. However, near-term trend is weakening as the commodity’s daily indicators have reached overbought levels signalling a potential correction in the price in the near future. In such a case, we don’t rule out a decline to 765 cents. A fall below this level will pull corn down to 720 cents in the short-term. Medium-term uptrend will be mitigated if corn declines below the 660 and 670 cents range, as in that even it can then decline to 620 cents.


Wheat, too, decisively broke out of a significant long-term resistance at 900 cents in the previous week.

Since its June 2010 low at 425 cents, wheat has been trending upwards. After taking support in the base band between 570 and 590 cents, the commodity resumed trending higher in May this year. As long as the commodity trades above the aforementioned base band, its long-term trend remains up.

Key long-term support above this band is at 750 cents. If wheat manages to hold above 750 cents we don’t rule out the possibility of hitting the three digit mark of 1,000 cents in the ensuing months. Next resistances are at 1,105 cents and 1,200 cents.

Both medium- and short-term trends are up for wheat. A decline below 850 cents will mar the short-term positive view and a further decline below 750 cent will mitigate the medium-term view. In the near-term, prices can correct to 885 cents as the commodity’s indicators are featuring in the overbought levels.


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