- The National Corn Index (national average cash price) is low, but not dramatically so despite its long-term downtrend that is approaching two years.
- December corn futures are also in a long-term downtrend, similar to what was seen in 2014 when the Dec contract finally bottomed during September and October.
- The Teucrium CORN ETF has lost 30% of its value since the end of May 2022, possibly low enough to start attracting long-term investment money.
I’ve recently written about safe haven markets, comparing the performance of two Kings of Commodities, gold and crude oil, as the world hurtles from one chaotic weekend to the next. The conclusion was long-term investors will likely continue to use gold to hedge risk in other market sectors despite the fact cash, futures, and ETFs are hitting new all-time highs. However, are these same investors looking at the different aspects of gold as a long-term opportunity? The most recent CFTC Commitments of Traders report (legacy, futures only) showed noncommercial trades decreasing their net-long futures position in gold by 496 contracts (as of Tuesday, April 16)[i]. Again, with different aspects of gold at all-time highs, it’s difficult to make a case for long-term investments based on either value or growth potential.
But what about King Corn? I’ve previously made the case that investment money moves in and out of the commodity sector when markets show good value or growth potential. The former can be measured by looking at a commodity market’s price distribution range[ii]. The lower a market sits in its range, the more undervalued it’s considered. On the other hand, a market in the upper end of its range (or posting new all-time highs) could be viewed as overvalued. This measure can be skewed by a change in demand. For example, corn’s price distribution changed as a result of the US Energy Policy Act of 2004. Much of the discussion now is if the same could happen with soybeans given the hype surrounding renewable diesel.
This also ties into the growth aspect of a commodity market. The easiest way to track growth potential is with a market’s forward curve. If inverted (backwardated, in New York terms), meaning nearby contracts are higher priced than deferred issues, then the market’s long-term supply and demand is bullish. We’ve watched this scenario play out time and time again in the Softs sector, most recently with cocoa (CCK24) screaming higher due to ongoing weather problems in West Africa[iii]. The flip-side of growth potential is a forward curve in carry (contango) where deferred contracts are higher priced than nearby issues. The stronger the carry/contango, the more bearish a market’s real fundamentals[iv].
How does corn look as a long-term investment when these metrics are applied? As I did with gold in my previous piece, we can look at corn as an investment opportunity in three different areas: Cash, Futures, and ETFs. For now I’ll set aside the discussion of producers as this group is considered long-term investors year in and year out.
The National Corn Index (ICY00), national average cash price, was calculated near $4.17 last Friday (April 16). This put the NCI in the lower 39% of its price distribution range. While this could start to attract some buying interest, the cash market still has the potential to move lower. Recall from previous discussions, since 2020 the NCI has been following a similar path to what was laid out from 2010 through 2014. While I don’t believe in analogous years, there is enough similarity to take a cautious approach before going all in on a long-term investment in cash corn. Additionally, real fundamentals of cash corn remain neutral meaning there is no fundamental rush to own the market.
What if an investment fund uses December futures contracts only, rolling from one to the next as the market dictates? Here we see a long-term downtrend has been in place since May 2022. Since then, noncommercial traders have moved from a net-long futures position of nearly 502,000 contracts to a net-short of 266,000 contracts[v]. This activity pushed the December 2024 contract (ZCZ24) to a low weekly close of $4.4950, putting Dec24 in the lower 40% of its price distribution range. Similar to the NCI, this is low, but still outside the bullish threshold of the lower 33% that begins at $4.15. The Dec24-March 2025 futures spread was covering 39% calculated full commercial carry (cfcc)[vi] while the Dec24-July 2025 spread covered 32.5% cfcc. The fact longer-term fundamentals are neutral-to-bullish makes Dec24 more attractive to investors.
When it comes to ETFs, the one I track is Teucrium (CORN). Similar to the NCI and Dec futures, CORN completed a long-term bearish reversal pattern on its monthly chart at the end of May 2022. CORN has dropped from that month’s close of $28.22 (and the April 2022 high of $30.30) to this past Friday’s settlement of $19.70, a decrease of 30%. The fund’s all-time low was $11.52 (May 2020), meaning the most recent low of $18.72 (February 2024) was a 61.8% retracement of the previous uptrend. Theoretically, last Friday’s price put CORN in the lower 20% of its lifetime price range, though the ETF will still be influenced by the same fundamentals influencing the NCI and December futures.
Is corn a good long-term investment? Maybe not at this time, but it is getting close. If the three different aspects of the market can hold the lows posted this past February, then investment money could start to filter into the market from a possible downturn in US stock indexes. Fundamentally the corn market in general is not as bullish as others, again based on its forward curve, but late spring and summer weather could change the supply side of the equation. Eventually this could be enough to turn long-term trends up. Back in 2014 the reversal occurred during September and October, setting a possible target for 2024.
[i] Granted, investors could be increasing their holdings in gold related stocks and ETFs.
[ii] I use weekly closes only to create price distribution ranges. These tell us where the current market fits historically.
[iii] We have to keep in mind production ag commodities are weather derivatives, often creating short-term spikes and selloffs based on changes in supply.
[iv] As opposed to imaginary fundamentals created by a variety of government agencies.
[v] Bringing to mind Newton’s First Law of Motion applied to markets: A trending market will stay in that trend until acted upon by an outside force, with that outside force usually noncommercial activity.
[vi] Based on a scale I put together decades ago for grains, 33% or less cfcc is considered bullish (including inverses) while 67% or more is considered bearish. Everything in between is varying degrees of neutral.
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.
