The Barchart National Corn Price Index, a key indicator of the market’s intrinsic value, continues its long-term downward trend. Real market fundamentals, in contrast to the USDA’s perspective, reveal that commercial traders are exerting pressure on the market.
The National Corn Price Index (NCPI) is experiencing a contra-seasonal selloff, signaling a deviation from the typical market trends for this time of year.
While I don’t follow weekend ag-based talk shows, it’s likely that they were filled with “experts” discussing the bullish outlook for the corn market. However, the author suggests that these experts often align their views with industry preferences rather than addressing the actual market needs.
Emphasizing the importance of focusing on market trends rather than speculative reasons, the author maintains that, in the case of corn, the market remains bearish.
Analyzing a market begins with understanding its trend, specifically its price direction over time. The author utilizes the Barchart National Price Indexes for a long-term view, noting that the National Corn Price Index has hit a new 2-year low of $4.2938 in November, extending its downtrend since May 2022.
The author warns against going against the trend, reinforcing the idea that the long-term trend for corn remains downward.
The decline in the corn market is attributed to both noncommercial and commercial factors. Noncommercial traders have increased their net-short futures position to 124,000 contracts, the largest since August 11, 2020.
While this opens the possibility of noncommercial short-covering, the commercial side of the market is not providing compelling reasons for funds to exit short positions.
Real market fundamentals are assessed through the commercial view of supply and demand, focusing on basis (cash-futures difference) and futures spreads. The Barchart National Corn Basis Index and futures spreads indicate a bearish sentiment.
The basis is stronger than the previous week, but it’s still below the 5-year average weekly close, suggesting a bearish outlook.
Additionally, futures spreads show a strengthening carry in the corn market, with commercial traders selling alongside noncommercial traders. The article concludes that both sides have been selling, contributing to a monthly decline in corn futures.
The National Corn Price Index tends to follow a seasonal pattern, but the current contra-seasonal selloff indicates a fundamental shift. Based on the study of the NCPI, basis, and futures spreads, the author suggests that supplies have increased in relation to demand, contrary to the typical seasonal decrease over the past five years.
In summary, the corn market is signaling a bearish outlook. Despite the potential for noncommercial traders to change their stance, the author emphasizes that fundamentals ultimately determine market outcomes, in line with Newsom’s Market Rule #6: Fundamentals win in the end.