Technically Speaking

The DTN National Corn Index (NCI.X) is the national average cash price for corn, calculated at the end of each business day using cash bids from almost 3,000 different locations. This has been going on for many years, giving us a good way of tracking developments and milestones in the cash market, as well as keeping an eye on basis and possible market bubbles.

DTN has a team of callers that come in each day to collect these bids after the futures markets close, with the results tabulated and released by early evening. Monday's efforts resulted in the DTN National Corn Index coming in 9 cents below last Friday's average of $4.0443, putting the national average cash corn price below $4.00 for the first time since September 2010 (top chart, dashed red line back to the left).

As the monthly chart for the cash corn market indicates, the major (long-term) trend is down, in step with the futures market. However, unlike the futures market, monthly stochastics (bottom study) for the NCI.X are already in an oversold situation well below the 20% level. In fact, both the faster moving blue line (2.3%) and slower moving red line (6.9%) are in single digits. This would indicate that the next move in the cash market could be sideways, on its way to establishing a major uptrend.

If we rely solely on these momentum indicators it would imply that basis (second study, thick green line) should strengthen. In other words, the NCI.X (cash market) could start to gain on the futures market. Heading into the end of the month, this seems counterintuitive.

Here's why: The nearby futures spread (third study, black line) shows the carry in the December to March futures spread has weakened to about 9 cents, putting the spread at a neutral level of cost of carry. If the spread showed a stronger carry (higher percent of cost of carry), short December futures hedges would be expected to be rolled out to the March contract while maintaining ownership to the underlying cash grain. However, since the carry is not strong enough to entice those holding the cash commodity to maintain this position, short December futures hedges could be lifted and the cash grain sold, leading to a weaker national average basis as the NCI.X loses ground to the futures market.

The situation seems to be a coin toss, meaning anyone holding cash grain will have to weigh out their own tolerance for risk. DTN's Corn Strategy change in recommendations Monday leans toward the more cautious approach that cash weakness could be seen as November nears its end.

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Commodity trading is very complicated and the risk of loss is substantial. The author does not engage in any commodity trading activity for his own account or for others. The information provided is general, and is NOT a substitute for your own independent business judgment or the advice of a registered Commodity Trading Adviser.