Posted by: usset001 | February 23, 2009

Mixed signals from the market Part 1: Corn

contrary-corn-1Over the past six weeks, grain markets have been sending mixed signals. Futures prices are trending lower, indicating a weak market. But the corn basis – an indicator of cash price fundementals – is trending higher. The accompanying chart shows a 65 cent decline in March corn futures since early January. Over the same period, the nearby corn basis has strengthened from nearly 40 cents to 22 cents under the March.

I am tempted to brush this off as a simple indication that farmers are reluctant sellers in a down marker. This may be true, but how do we explain the narrowing of carrying charges over the same time period (see next chart). Over the past three weeks, the March/July corn spread has narrowed from 22 to 18 cents.

Fundementally weak markets can be characterized by three different trends: (1) lower futures prices, (2) weakening basis levels and, (3) widening carrying charges. So what do we make of a market when only one of these trends is lower, while the other two indicate a fundemetally strong market?

These mixed signals are not limited to the corn market. Check out my next post on soybeans.

contrary-corn-2


Responses

  1. my opinion is you have markets that if where not so heavily influenced by outside markets would probably be much firmer……fundamentals are much better for some of the grains then they where


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