HomeMost PopularThe Royal Corn Conundrum: A Bullish Turn?

The Royal Corn Conundrum: A Bullish Turn?

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  • The 2024 corn market witnessed a robust surge in March, with both the National Corn Index and futures market displaying substantial gains.
  • A sense of déjà vu lingered as 2014 seemed to replay in the background.
  • Fundamentally speaking, the market landscape remains consistent, with futures spreads adopting a neutral-to-bearish stance for old-crop and a neutral-to-bullish tilt for new-crop.
  • Content, contentment reigned supreme among the corn market bulls last Thursday post Watson’s[i] reaction to the USDA’s divulgence of its quarterly Grain Stocks and Prospective Plantings reports. The distinction lies not in the response but in the consequence. If I can decipher the cryptic messages of various markets regarding the true fundamentals well in advance of official data releases, so can Watson. The industry’s prevailing apathy towards this concept leaves me bewildered, even though it stands as plain as day. To summarize briefly: The National Cash Index, inclusive of corn, indicated a significant rise in available stocks-to-use by the end of February compared to a year prior. USDA’s grain stocks figures validated this. The Nov24 soybean/Dec24 corn futures spread from September to February hinted at soybeans edging out corn in terms of planted acreage. Lo and behold, USDA’s projections echoed these sentiments. Yet, the industry at large seems oblivious to the logic of market observation. As March concluded, many in the field wore smiles of satisfaction.

    April holds the key to unraveling whether King Corn[ii] stands at the cusp of a bullish transformation. For avid readers of my musings, you’ll recall my meticulous tracking of the National Corn Index (ICY00), a barometer reflecting the national average cash price and intrinsic market value, tracing a narrative akin to the years between 2010 and 2014. A decade ago, the NCI soared from a meager January low near $3.94 to an April peak marginally shy of $4.57, only to plummet to a nadir of $2.8150 by October. This time, the NCI portrays a February low around $3.8025 before wrapping up March near $4.1825. Analyzing the monthly closes exclusively from September 2020 through 2024 thus far, the correlation with the corresponding period in September 2010 through 2014 stands at a remarkable 78%. While I refrain from accepting strict analogs between years, the close relationship between these time frames still sends a cautionary whisper about hasty bullish endeavors.

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    Detractors may proclaim, “Disregard the cash market; our focus should be solely on the new-crop December futures contract!” Engaging in this mental exercise, the Nov24 soybean/Dec24 corn futures spread, showcasing an average weekly close of 2.49 over the 6-month observation period (September 2023 through February 2024), presents an intriguing mirror to 2014. Casting our gaze back at acreage shifts that year in comparison to 2013 reveals a notable 8.5% upsurgence in soybeans juxtaposed with a 5% dip in corn. USDA’s initial assessment[iii] of corn planted area for 2024 sits at 90 million acres (ma), 5% shy of 2023’s reported 94.6 ma. How did the Dec 2014 futures contract fare, you inquire? Curious coincidence alert: On the day of the Prospective Plantings report, Dec14 displayed a bullish external range before sealing the day with an 11.0-cent uptick. Sound familiar? Dec24 (ZCZ24) replicated this script last Thursday, albeit concluding with a 15.5-cent rise. A decade past, Dec14 extended its ephemeral upward rally by approximately 20 cents until April 9 before commencing a $2.00 descent to its October 1 trough. Shall Dec24 mirror this trajectory? Grab your popcorn, and let’s witness the saga together.

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    Day-to-day oscillations in the market hold trivial import. In my lexicon, there exists a notion I call the “One Day Wisdom,” dictating that a single day does not suffice to define a trend. Admittedly, corn contracts executed bullish reversals on daily charts last Thursday; however, prudence demands we consume technical analysis with a grain of salt. This analytical tool can be swayed by zealous noncommercial activities, vividly evident last Thursday as corn trade volume soared to 748,000 contracts. With futures spreads exhibiting minimal movement throughout the day, I conjecture Watson chose to offset a significant portion of its extensive net-short futures position. On a contrasting note, total open interest swelled by 41,000 contracts, signaling additional buying undertakings. Peering at the long-term monthly charts for the NCI and Dec24 futures contract (the continuous monthly chart exclusively for December), the absence of established uptrends hints at a narrative disparity from a decade prior. Time shall unfurl whether cash and December futures will forge paths distinct from those etched ten years ago.

    The collective yearning for a bullish corn market permeates the industry. To reframe – most envision profitability only through an upward surge. However, the bedrock fundamentals remain largely unaltered. By February’s close, the May-July corn futures spread reflected a carry of 11.75 cents, encapsulating 56% full commercial carry calculation, whereby 67% or more signifies a bearish outlook[v]. March’s culmination saw this spread elongate to 12.5 cents, encompassing 59%. On the new-crop horizon, the Dec-March futures spread wrapped up March with an 12.25-cent carry (37% cfcc), slightly shy of the 38% at February’s close. Those engrossed in constructing fictional new-crop supply and demand narratives without a pulse on the impending dynamics ought to tread cautiously. Do I lean towards a bullish stance for King Corn at this juncture? Tentatively, let’s just say I entertain the thought, at least for today. Now, glance back at the inaugural word of each preceding paragraph.

    [i] My moniker for the algorithm-based investment sphere at large.

    [ii] Premier among the 3 Kings of Commodities, accompanied by Crude Oil and Gold.

    [iii] Despite its billing as the premiere glimpse into expected acres, Prospective Plantings actually marks the third iteration following USDA baseline figures and Ag Outlook Forum estimates. 

    [iv] Drawing inspiration from Malcolm Gladwell’s publication “Blink.”

    [v] Whereby 33% or less leans towards a bullish sentiment.

    On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The information and data herein is purely for informational purposes. For further details, kindly refer to the Barchart Disclosure Policy.

    The thoughts and opinions presented here are the author’s own and do not necessarily align with Nasdaq, Inc.

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