- The 2024 corn market posted a solid rally to close out the month of March, with strong gains seen in both the National Corn Index and futures market.
- We've seen this before, though, as the same scenario played out back in 2014.
- Fundamentally the market hasn't changed, with futures spreads neutral-to-bearish for old-crop, neutral-to-bullish for new-crop.
Happy. My guess is that’s how most corn market bulls went home last Thursday given Watson’s[i] reaction following USDA’s quarterly Grain Stocks and Prospective Plantings reports. Note I didn’t say “reaction to” the reports, but “reaction following”. What’s the difference? If I can read what the various markets are saying about real fundamentals well in advance of the release of government numbers, so can Watson. Why more folks in the industry don’t understand that is beyond me, but it is what it is. To quickly recap: The National Cash Indexes, including corn, told us available stocks-to-use were much larger at the end of February than they were a year ago. USDA’s grain stocks figures agreed. The Nov24 soybean/Dec24 corn futures spread from September through February told us soybeans were buying planted area away from corn. Again, USDA’s prospective plantings guesses concurred. Yet, so many in the industry simply don’t, can’t understand the logic of watching markets. So they went home happy as March came to an end.
April could be a key month in deciding if King Corn[ii] has turned bullish. If you’ve been following along with my commentary you’ll recall I’m tracking the National Corn Index (ICY00), the national average cash price and intrinsic value of the market, watching as it continues to follow the path laid out from 2010 through 2014. A decade ago, the NCI rallied from a January low near $3.94 to an April high just short of $4.57 before falling back to a low of $2.8150 during October. This time around, the NCI is showing a February low near $3.8025 before finishing March near $4.1825. Based on monthly closes only, looking at the September 2020 through 2024 so far, the correlation with September 2010 through September 2014 is running at 78%. While I don’t believe analogous years, or sets of years exist, I do see there continues to be a close relationship between the two time frames that casts at least a shadow of warning on getting too bullish too fast.
Fools will say, “The cash market doesn’t matter. All we have to watch is the new-crop December futures contract!” Okay, I’ll play along. Based on the aforementioned Nov24 soybean/Dec24 corn futures spread showing an average weekly close of 2.49 for the 6-month tracking period (September 2023 through February 2024). The previous 10-year average weekly close for those 6 months was 2.4, meaning the 2024 spread favored more soybean planted area. What was the year, within the previous 10, that fit closest to 2024? Why 2014, of course. If we go back and look at acreage changes that year, in relation to 2013, we see soybeans increased by 8.5% while corn decreased by 5%. For the record, USDA’s third first guess[iii] on corn planted area for 2024 was 90 million acres (ma), down 5% from 2023’s reported 94.6 ma. What happened with the Dec 2014 futures contract? Funny you should ask. The day of the Prospective Plantings report Dec14 posted a bullish outside range before closing 11.0 cents higher for the day. Does this sound familiar? Dec24 (ZCZ24) did the same thing last Thursday, only closing with a gain of 15.5 cents. A decade ago, Dec14 extended its short-term rally roughly 20 cents through April 9, before starting the process of falling $2.00 to its October 1 low. Will Dec24 do something similar? Grab some popcorn and we’ll watch together.
Day to day changes in a market aren’t all that important. In fact, I often remind folks of something I call the One Day Wisdom, “One day does not a trend make”. Yes, corn contracts completed bullish reversals on daily charts last Thursday, but sometimes we have to take technical analysis with a grain of salt. It can be influenced by heavy noncommercial activity, something that was certainly evident Thursday as trade volume in corn skyrocketed to 748,000 contracts. Given futures spreads did little over the course of the day, my Blink[iv] reaction was Watson decided it was time to cover some of its large net-short futures position. That being said, total open interest increased by 41,000 contracts, so there was additional buying as well. If we look at the long-term monthly charts for both the NCI and Dec24 futures contract (the Dec only continuous monthly chart) we don’t see uptrends established yet. Time will tell if this is where both cash and Dec future start to diverge from the path laid out a decade ago.
Everyone wants corn to be bullish. Let me rephrase that, most folks want the market to be bullish because they believe money can only be made to the upside. The problem is fundamentals haven’t changed all that much. At the end of February, the May-July corn futures spread closed at a carry of 11.75 cents and covered 56% calculated full commercial carry, with 67% or more considered bearish[v]. At the end of March, that same spread was showing a carry of 12.5 cents and covered 59%. Looking out to new-crop, the Dec-March futures spread finished March at a carry of 12.25 cents (37% cfcc) as compared to the end of February’s 12.5 cents (38%). Folks already making up imaginary new-crop supply and demand tables despite having no idea of what supply and/or demand will be, need to keep this in mind. Do I think King Corn has turned bullish? Let’s say I do, at least for today. Then take a look at the first word of each paragraph.
[i] My name for the algorithm-based investment industry in general.
[ii] One of the 3 Kings of Commodities, along with Crude Oil and Gold.
[iii] Prospective Plantings, despite being billed as the first look at expected acres, is actually the third estimate following USDA baseline numbers and Ag Outlook Forum guesses.
[iv] Based on the Malcolm Gladwell book “Blink”.
[v] And 33% or less considered bullish.
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. For more information please view the Barchart Disclosure Policy here.
