- As of Thursday morning (September 28), the corn market was giving conflicting signals as to whether it was forming a long-term bottom.
- The intrinsic value of the market remained under pressure, due to weakening national average basis, while the December 2023 futures contract was in position to complete a bullish reversal.
- Ironically, Friday's settlement, the end of the month, will likely come down to whatever number USDA releases for its September 1 corn stocks on hand.
This past weekend, after I posted last Friday’s CFTC Commitments of Traders report (legacy, futures only) noncommercial position chart for corn, I received a number of responses. Recall last week’s update showed funds increasing their net-long futures position in corn by 13,245 contracts, putting it at 101,233 contracts as of Tuesday, September 19. This was the largest noncommercial net-short futures position in corn since 102,419 contracts the week of July 28, 2020. One responder cut right to the chase by asking, “Would a valid conclusion be that a long-term bottom is forming (in corn) as it did during the summer of 2020?”
I’ve been chewing on this question all week and am still convinced my Blink[i] reaction is correct – Maybe. I know, that isn’t what anyone wants to hear, but there is much to consider, especially this week of this year as September comes to an end and the corn market continues to give us mixed signals. We have to cloud our possible conclusions by thinking about corn’s intrinsic value, something we can see daily with the Barchart National Corn Price Index (ZCPAUS.CM). To this we add our technical study of the December 2023 futures contract (ZCZ23), including the short-term trend on its daily chart, intermediate-term trend on its weekly chart, and long-term trend on its continuous monthly chart. Naturally, this brings to mind the Goldilocks Principle[ii], though the initial question did have to do with a long-term bottom on the monthly chart.
I’ve talked numerous times about how the national cash index, from 2020 through at least August 2023, has been tracking along the path laid out by the same cash index from 2010 through 2014. At roughly the same point, noncommercial traders reportedly held a net-short futures position in corn of 102,276 contracts, on its way to a low of 135,255 contracts the week of October 29, 2013. A decade ago, based on monthly closes only, the cash index didn’t bottom out until July 2014 at a price of $3.37. This was down roughly 90 cents from its final calculation the preceding September.
But what about 2020? The noncommercial net-short futures position bottomed out at 235,013 contracts the week of June 9 and was being rapidly reduced by the time the US reached fall harvest. This time around the net-short futures position continues to increase, resembling more the pattern from 2013 and 2014. But why would noncommercial traders continue to sell? Fundamentally the 2023 market is similar to what we saw three years ago, meaning there is a chance funds could bring an end to the selling sooner rather than later. Whether this group becomes an aggressive buyer is a different discussion.
Another reason I’ve continued to ponder (some would say procrastinate) my answer to the initial question is the question itself. It had to do with a long-term bottom in the corn market, something we won’t know from a technical point of view until we get Friday’s close. Those familiar with my commentary will recall Dec corn has been in a long-term downtrend since May 2022 when Dec22 completed a bearish spike reversal on the continuous monthly chart. Fast forward to September 2023 and Dec23 extended the long-term downtrend to a low of $4.6775 before rallying. Heading into Thursday’s session Dec23 was priced at $4.8325, 5.0 cents above the August settlement. Given what we’ve seen so far this month, a close above the August mark would complete a bullish spike reversal, confirming a new long-term uptrend is in place.
What does this tell us? Applying Newton’s First Law of Motion to market analysis and we have, “A trending market will stay in that trend until acted upon by an outside force, with that outside force usually noncommercial activity”. In other words, if Dec23 completes a bullish reversal pattern it would indicate noncommercial traders should indeed start covering their net-short futures position and work toward building a net-long. Again, corn market real fundamentals (basis and futures spreads) are neutral, similar to what we saw 3 years ago.
As much as it pains me to say it, the deciding factor on if corn turns long-term bullish or stays bearish could come down to the river card[iii] - USDA’s September 1 stocks on hand figure. That’s right, stocks as of September 1 released on the last trading day of the month, the de facto ending stocks number for the previous marketing year[iv]. Will it be above or below the guess of 1.452 billion bushels (bb) from USDA’s September Keno game known as its monthly Supply and Demand report? Will traders and algorithms consider the 300 (400) Consistency[v] before making a knee-jerk reaction of bullish or bearish? This is what the fate of the corn market rests on.
And why I’m sticking with my answer of “maybe”.
[i] Based on the book Blink by Malcolm Gladwell. My summary of the book is it talks about the strong tendency of our initial reaction being right, before we spend time talking ourselves out of the first conclusion.
[ii] The Goldilocks Principle tells us daily charts are too hot, monthly charts are too cold, but weekly charts are just right.
[iii] In poker, the river card is the fifth and final community card players can use to determine their 5-card hand.
[iv] Until USDA changes it again down the road, which it almost always does.
[v] Historically, USDA tended to find or lose roughly 300 mb from its September Supply and Demand guess to its end of the month Grain Stocks report. There were countless excuses made by USDA apologists, including adding newly harvested bushels into old-crop stocks and saying how hard it is to figure feed demand.
More Grain News from Barchart
- Beyond Belief: The Unexpected Resurgence of BYND Stock in the Market’s Underbelly
- Fractional Weakness for AM Corn Trade
- Nov Beans Back Under $13
- Red Start for Thursday’s Wheat Trade
