As we transitioned from October to November, the grain market landscape sparked discussions about whether corn, soybeans, and wheat had taken a long-term bullish turn. Setting aside the customary optimism often heard in agricultural commentaries, I’ll delve into the intrinsic value of these markets, primarily using the Barchart National Price Indexes. These indexes offer a weighted national average of cash prices, which factor in both fundamental and technical market elements while excluding the third branch of market analysis, algorithm activity, which is a subject for another day.
Let’s initiate this discussion with a focus on the Barchart National SRW Wheat Price Index (ZWPAUS.CM), associated with the Chicago (SRW) futures market. This market is the largest wheat futures market globally and is often considered a barometer for the global wheat supply and demand situation. Did this index turn bullish at the end of October? The answer, similar to the debate among die-hard wheat market bulls, is not entirely clear.
From a technical standpoint, the SRW Wheat Price Index displayed an inside range on its long-term monthly chart. This means it neither extended the downtrend that has persisted since May 2022 nor completed a bullish reversal pattern. The only favorable factor as we enter November is that monthly stochastics are notably oversold. The question remains whether this will attract buyers back to the market. However, it’s essential to keep in mind Newsom’s Market Rule #6: Fundamentals ultimately prevail. When reviewing the Barchart Chicago wheat Cost of Carry table at the end of October, it’s evident that the Dec-March spread closed at a carry of 29.0 cents, covering around 84% of the calculated full commercial carry (cfcc). This observation highlights the underlying market dynamics, leaving room for further evaluation.
On the other hand, the Barchart National Soybean Price Index (ZSPAUS.CM) extended its long-term downtrend throughout October, following a bearish key reversal pattern in June 2022 (at the peak of Wave 5 on the monthly chart). After reaching an October low of $11.8962, the index rallied to a high of $12.6016 and closed the month at $12.3983, marking a 30.67-cent increase over the September settlement. Although spike reversals are typically not a preferred pattern, they have the added benefit of aligning with a bullish crossover by monthly stochastics below the oversold level of 20% at the end of October. This combination suggests a long-term reversal signal, both in terms of stochastics and pattern recognition.
From a fundamental perspective, the soybean market remains neutral, albeit with signs of commercial buying interest emerging over October. The January-March futures spread revealed a carry of 14.25 cents, covering approximately 43% cfcc by the end of October, in contrast to the same spread at the end of September, which closed at a carry of 15.75 cents, covering 47.5% cfcc. For a potentially more extended bullish supply and demand scenario, it is necessary to examine the May-July futures spread, which covers 23% cfcc. This could stimulate buying interest in both cash soybeans and the futures market, particularly considering the recent drop in the noncommercial net-long futures position to its lowest level since March 3, 2020.
Now, onto corn: Did the King of the Grain Sector take a long-term bullish turn at the end of October? Similar to soybeans, the Barchart National Corn Price Index (ZCPAUS.CM) completed a bullish spike reversal last month. This signifies an extension of the long-term downtrend that has persisted since May 2022, reaching a low of $4.4167 before rallying to close the month at $4.4923, marking a 2.69-cent increase for the month. Like soybeans, the monthly stochastics for the NCPI displayed a bullish crossover below the oversold threshold of 20%, indicating the potential for a positive shift in the long-term trend.
However, the spike reversal pattern is not a preferred one, and there are doubts about the NCPI’s monthly chart. Corn is known for its tendency to move sideways for extended periods, which may explain the hesitation. Therefore, before fully committing to buying cash corn, it may be prudent to wait for the establishment of a new 4-month high. If this occurs, one may hope that the NCPI continues to move sideways, with the previous 4-month high from July at $6.0804 being lowered as we enter November.
Featured Image: Freepik @ kot64
