- To summarize SRW wheat's situation at the end of October, it was as bullish as Jeppson's Malort is tasty.
- On the other hand, the cash soybean market did complete a bullish reversal pattern last month, though not one I'm particularly fond of.
- Like soybeans, cash corn also completed a bullish reversal pattern, though I still have my doubts about the bullishness of the King of the Grain Sector.
As we turned the calendar page from October to November last night, the question heard across the grain sector was if corn, soybeans, and/or wheat had turned long-term bullish. Setting aside the usual answer heard in the ag commentary industry – everything is always bullish no matter how bearish – I want to spend some time going over the intrinsic value of the markets. To do this, I’ll be talking about the various Barchart National Price Indexes. These are weighted national average cash prices that reflect both fundamental and technical market factors. On the other hand, it leaves out the third branch of market analysis, the study of algorithm activity, but that’s a discussion for another day.
Let’s start this November 1 conversation with a look at the Barchart National SRW Wheat Price Index (ZWPAUS.CM). This is tied to the Chicago (SRW) futures market, the largest wheat futures market in the world and therefore often viewed as a proxy for the global wheat supply and demand situation. Did the SWPI turn bullish at the end of October? Is Jeppson’s Malort tasty? That means no, but just as with die-hard wheat market bulls you will hear arguments to the contrary.
From a technical point of view the SWPI posted an inside range on its long-term monthly chart, meaning it neither extending the downtrend the index has been in since May 2022 nor completed a bullish reversal pattern. The only thing the SWPI has going for it heading into November is monthly stochastics are sharply oversold. Will this bring buyers back to the market? Keep in mind Newsom’s Market Rule #6: Fundamentals win in the end, and then look at the end of October Barchart Chicago wheat Cost of Carry table and note the Dec-March spread closed at a carry of 29.0 cents and covering about 84% calculated full commercial carry (cfcc). End of discussion.
On the other end of the spectrum, we have the Barchart National Soybean Price Index (ZSPAUS.CM). As October played out, the NSPI extended the long-term downtrend it has been in since it completed a bearish key reversal during June 2022 (the peak of Wave 5 on the monthly chart). After hitting an October low of $11.8962, the NSPI rallied to a high of $12.6016 and settled the month at $12.3983. This put it 30.67 cents over the September settlement. As I’ve talked about before, when it comes to patterns the spike reversal is not my favorite. It often leads to a quick retracement back to near the recent low (or high if a bearish reversal), if not failing to hold over time. Still, this one has the added benefit of coinciding with a bullish crossover by monthly stochastics below the oversold level of 20% at the end of October. This means a long-term reversal was both signaled (stochastics) and confirmed (reversal pattern) on the monthly chart.
Fundamentally the market remains neutral, though did show signs of commercial buying interest over the course of October. The January-March futures spread closed Tuesday at a carry of 14.25 cents and covering about 43% cfcc as compared to the same spread at the end of September finishing at a carry of 15.75 cents and covered 47.5% cfcc. If we look at the Barchart Cost of Carry table we have to go out to the May-July futures spread, covering 23% cfcc, to see a possible longer-term bullish supply and demand situation. This could be enough to spark some buying interest in both cash soybeans and the futures market. Recall the noncommercial net-long futures position had recently dropped to 22,503 contracts (week of October 3), its smallest level since 11,378 contracts the week of March 3, 2020.
But what about corn? Did the King of the Grain Sector turn long-term bullish at the end of October? As discussed in soybeans, the Barchart National Corn Price Index (ZCPAUS.CM) completed a bullish spike reversal last month. This means it extended the long-term downtrend the market has been in since May 2022 to a low of $4.4167 before rallying to finish the month at $4.4923, up 2.69 cents for the month. Also like soybeans, the NCPI’s monthly stochastics established a bullish crossover below the oversold level of 20%, again signaling the long-term trend should/could turn up. But did it? Again, spike reversals are not my favorite and I have doubts about what I see on the NCPI’s monthly chart. Maybe it has to do with corn’s characteristic preference for moving sideways for extended periods of time. Given this, before I go all-in on buying cash corn I might wait for a new 4-month high to be established. If so, my hope is the NCPI continues to move sideways, lowering the previous 4-month high from the July mark of $6.0804 as we head into November.
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.
