Technically Speaking

Dec Corn Trends: Futures, Spreads, and Basis

Darin Newsom
By  Darin Newsom , DTN Senior Analyst
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Source: DTN ProphetX

While the December corn contract has lost the title of most heavily traded to the March issue, most producers continue to watch the Dec due to the fact it is still the base for cash prices, and many of them (including the DTN corn strategy) have their short-hedges in the contract. That being the case, it is interesting to take a look at all that is going on as another week gets under way.

First, the minor (short-term) trend of the market remains sideways to down. While December corn did not post a new low overnight (as the March contract did), it continues to hold near its previous low of $4.15 1/2. Daily stochastics (second study) that had tried to turn bullish last week have quickly turned down again, approaching the oversold level of 20%. Both of these (trend, stochastics) would imply that noncommercial traders were selling as last week came to an end.

Fundamentally the market has seen some commercial buying. The December to March futures spread (third study, green line) has been trending up of late, its carry reduced from 11 3/4 cents (Tuesday, November 12) to 8 1/2 cents (Friday, November 15). This put the cost of carry at a neutral 47% (approximately). Meanwhile basis has flattened out at roughly 18 cents (the DTN National Corn Index (national average cash price) minus the December futures contract).

Taking the market as a whole, the December contract could push to a new low as it heads toward delivery at the end of this month. This should continue to support basis, and possibly the December to March futures spread, as merchandisers look to source supplies to meet demand. With not enough carry in the December to March (or December to May, or December to July) spread(s) to warrant rolling the short-futures position, it is possible a large percentage of the crop could be sold by the end of November. This could lead to a weakening of basis heading into December, before a potential recovery is seen later in the month.

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