Market Matters Blog

Investors simply don't want commodities. The supercycle that's boosted everything from ags to oil to metals has been declared dead, by and large, for a variety of macro factors. This isn't news, but it's starting to become very apparent in the corn market. Corn just isn't an attractive investment, and noncommercial traders have demolished their net futures position to a mere 32,000 contracts at the end of June. Compare that to highs near 500,000 in 2011.

DTN Senior Analyst Darin Newsom put together a study comparing the net futures position on noncommercial traders compared to the weekly close of the most active futures contract (blue bars in chart above). This feature recently rolled from July to Dec, accounting for much of the drop in price (red line in top study). It's an interesting picture of how noncommercial money pushed the market up the past few years, and how their pulling out dragged down prices.

It's this factor, more than fundamentals or traditional corn market influences, that has driven corn prices this year, Newsom said.

The middle study shows an index of market volatility, which increased in mid-2012 and sparked initial investor liquidation. Newsom notes that the roll from July to Dec skewed this indicator to look at little more drastic than it really is. Actual volatility in the December contract is up about 28%, not the 38% shown on the chart, yet it doesn't change the underlying point. Higher volatility means more risk, and "as volatility continues to increase, liquidation continues to pick up pace," Newsom said.

The bottom study shows the nearby futures spread -- July to September -- which Newsom said shows how the old-crop fundamentals (spreads typically reflect the market positions of commercial traders) have grown more bullish as investors exited. The old-crop to new-crop reflects a more neutral stance, Newsom said, especially compared to the bearishness of investors.

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