The various aspects of the corn market have turned bullish, technically, since last August.
The noncommercial side of the market has switched its net-futures position by nearly 550,000 contracts since last February.
The corn market's real fundamentals remain neutral-to-bullish giving Watson reason to buy longer term.
Earlier this week I was in Clearwater, Florida speaking at the Water Street Solutions EDGE Conference. My friend Darren Frye had invited me well in advance, then like everyone else I watched that area of Florida get hammered by back-to-back hurricanes of Helene and Milton this past September and October. At one point I remember making the comment it looked like Mother Nature was trying to saw Florida off just below the panhandle. But the area survived, and rebuilt, so much so it was hard to imagine the damage discussed by both Uber drives I had the opportunity to visit with on the way from and to the airport.
The idea of a hurricane fit with my talk on markets. The theme of my presentation was a look ahead at 2025. My view is markets are facing a hurricane, a storm that will do nothing but create chaos and havoc, making a projection for what might be after the hurricane passes pointless. As always, it depends on what track the storm actually takes. Following my presentation, I was asked what my favorite market is for 2025. My answer was what it has been since moving to Omaha 21 years ago – Corn.
When I say King Corn is my favorite market, it doesn’t mean I am a raging bull for the next 12 months. Rather I view corn as the bonds of the commodity sector, a stable market that tends to follow its technical patterns and fundamental factors relatively well, making it an easier market to read. That’s why some long-term investors choose bonds rather than stocks. It also goes back to my paraphrasing a well-known quote from Peter Lynch, “Invest in what you know” and what Malcolm Gladwell talked about in his book “Outliers”. I’ve spent more than 10,000 hours studying the corn market, so I know it well. Let’s take a look at Corn from three different perspectives.
Technical Analysis: Recently I talked about how the three Teucrium grain ETFs I track all completed long-term bullish reversal patterns. A look at the monthly chart for CORN (CORN) shows a bullish spike reversal at the end of August, coinciding with a similar pattern on the continuous chart for December corn futures only. (As an investment strategy, I focus on December futures only to avoid the cost of rolling from one contract to the next and the spread risk that includes. December is annually the most heavily traded contract in the corn market.) Regarding the December chart: Dec24 completed a bullish spike reversal during August, ending the 3-wave downtrend that began with a bearish spike reversal at the end of May 2022. The new long position would’ve been rolled from Dec24 to Dec25 (ZCZ25) in late October.
Watson/Algorithms: My argument has long been the noncommercial side sets the trend, though I still have the discussion of if algorithms are trend following or trend setting with others in the industry. It’s possible they are both, but that’s a bigger discussion for another day when I delve into the idea the study of Watson (my name for the algorithm-led investment industry in general) takes precedence over classic technical analysis and typical fundamental analysis. A look at the chart built with numbers pulled from weekly CFTC Commitments of Traders legacy/futures only reports shows Watson held a record large net-short futures position of 266,067 contracts the week of February 20, 2024. Since then, Watson’s position has moved to a net-long of 290,515 contracts as of Tuesday, December 31, a switch of 556,682 contracts over the course of 2024. This could be viewed as both bullish and bearish with the record large net-long futures position up at 547,677 contracts indicating there is still room for Watson to add to its position unless the fundamentals of the market change.
Fundamental Analysis: As you know, I take a different view of market fundamentals than the majority of the industry. Rather than blindly following USDA’s imaginary numbers, I track three key reads on real supply and demand: The trend of National Cash Indexes (in the case of corn, the National Corn Index ($CNCI)), Basis (local and national), and the percent of calculated full commercial carry (cfcc) covered by futures spreads. In the case of corn, the NCI completed a bullish reversal pattern on its long-term monthly chart at the end of November 2024 telling us the previous major downtrend had ended. However, national average basis remains weak with weekly calculations continuing to run near previous 5-year low weekly closes. The combination of these two reads tells us that while demand was solid during late 2024, there was plenty of supplies to meet this demand. The nearby futures spread (first Dec-March then March-May) has covered a neutral-to-bullish level of cfcc since late October. What stands out to me here is the May-July spread has covered a bullish level of cfcc since early August giving us a longer-term bullish read on supply and demand.
Finally, will anything that happens during today’s USDA nonsense change my mind? I get asked this question frequently. My answer is this: Why would it if USDA’s numbers aren’t real?
