- The corn market’s three key fundamentals reads (cash, basis, and futures spreads) are all more bullish than they were a year ago at this time.
- However, the market’s long-term technical picture is more bearish after reversal patterns were completed on monthly charts this past spring.
- As we head into winter, the question will be if global investment traders are willing to put money on corn’s fundamentals or new bullish technical patterns for US stock indexes.
As you’ve likely realized by now, after roughly 20 years of talking predominantly about the corn market it is still the one I find most interesting. A couple things:
- If I were an investor, I’d focus primarily on corn and related markets and stocks. Why? For the same reason some traders prefer trading bonds over stocks. The corn market makes sense, usually, and tends to stick with the rules I’ve developed over the last 4 decades.
- Second, for a long time I’ve considered putting together a book of all my columns concerning corn (yes, including my take on Waiting for Godot). Given I am originally from Kansas (and an avid reader of Mark Twain), back in the day when corn was not a big deal in the Sunflower, I had planned on calling the book “A Kansas Jayhawker in King Corn’s Court”. Maybe someday.
Okay, now that the fluff is out of the way, let’s turn our attention back to the corn market. To be specific, let’s look at corn’s fundamental picture as we approach the end of October and the 2022 harvest nears completion. Recall from my previous piece when I talked about King Corn’s split personality, meaning long-term technical patterns were bearish while both short-term and long-term fundamental reads were bullish. All this led to a familiar conclusion, Newsom’s Market Rule #6 that tells us “Fundamentals in in the end”.
Has the fundamental picture changed the last couple weeks? Yes, by growing even more bullish.
First, the national average cash price has firmed to roughly $6.8950, correlating to an available stocks-to-use figure of 8.3%. What’s interesting about this is reportedly the US has harvested roughly 50% of its crop during the month of October, yet my analysis shows available stocks-to-use tightened from 8.4% to 8.3% over the course of the month. At the end of October 2021, the national average cash price was near $5.5150 and correlating to available-stocks-to-use of 10.3%. By the time the US had reached the end of April 2021 cash corn had climbed to $8.00 and available stocks-to-use had fallen to 7.1%.
The tighter available stocks are in relation to demand, the stronger national average basis tends to be. My latest calculation for national average basis came in 3.3 cents over December, with the previous 5-year high weekly close for this week coming in at 15.7 cents under December. Last year at this time national average basis was calculated at 16.8 cents under December meaning this year’s spot basis market is 20 cents stronger than a year ago. No matter how one chooses to analyze basis, that’s impressive.
Our third fundamental read is futures spreads. Here we see Tuesday’s close had the initial December-March spread at a carry of 6.0 cents and covering 17% calculated full commercial carry (cfcc) as compared to the October 31, 2021 close of the Dec21-March22 spread at a carry of 8.0 cents and 30% cfcc (with 33% or less considered bullish). Long-term we see the Dec22-July23 spread closed at an inverse of 0.5 cent versus last year’s end of October close by the Dec21-July22 spread at a carry of 10.5 cents.
These three key fundamental reads all show the same thing: The corn market is more bullish this year than it was a year ago at this time. Could these reads change? Certainly, as there are possible concerns in all three categories of demand for US corn (feed, ethanol, and exports). But we will see these changed expectations start to play out in the cash market, basis market, and futures spreads before any official government guesses gets the industry’s attention.
The questions now are if global investment traders will set aside bearish technical patterns on the market’s long-term monthly charts and start moving money back into corn (and other fundamentally bullish commodities). Or will the completion of bullish technical reversal patterns in all three major US stock indexes at the end of this month override corn’s bullish fundamental reads and attract renewed investment interest, pulling money away from commodities? Stay tuned.
More Grain News from Barchart
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.