Corn and commitment of traders
The market is not looking to find “Fair Value” in this current “Fear Driven” Market. Any thoughts on upside and downside risk above and/or below current prices should be considered…
The fundamentals to support a bullish market remain in place for this corn market. I still believe the job of this market is to see prices high enough to ration demand. A narrow focus on crush, feed, and export demand could argue that price has not rationed demand just yet. I would not discount a potential run up to 9.50 or even 11.00.
But other signals could be telling of demand rationing already. The strong dollar may not ration immediate demand, but it will ration future demand. Remember, this is a Futures Market. No chart attached - but the selloff across the equity markets needs to be monitored. Retail and fund investors have been more speculative into the current stock market and maintained highly leveraged (margined) positions. A continued sell off in equities could cause a major liquidity drain across all tradeable markets. Large Spec Fund’s may reduce their position out of the commodity space for some time. This will ration Paper demand….
Corn – Monthly Continuous: Competing with all time highs.
Commercial Longs (blue): Mostly End users hedged corn, bought to protect margins. Currently more than 200k less contracts compared to this same time last year with a market that is almost a dollar higher (Divergence). But, currently in line with previous years. I am surprised they are not as excited this year to hold more long positions. If they do get excited, I assume that will cause the next strong run up.
Commercial Shorts (yellow): Mostly elevators hedged corn bought from producer. Currently just over 1m short positions held. In line with 18’ and 19’ seasonal positions. Typically, a seasonal position between 800k and 1m shorts held by the commercials represents enough Natural selling to settle down the Corn Market. The commercial elevators appear to own a significant amount of corn. Is end user basis strong enough, and is the July/Sep inverse strong enough to move elevator owned bushels yet???
** In theory elevators are Shorts and end users are Longs. But in this strong demand driven inverted market I expect there to be spread positions placed from both sides to add another layer of protection. All this just makes for a more challenging market when positions are lifted and can self feed a trend regardless of fundamentals and technicals **
Commercial Net (Green): The spread between the Shorts and the Longs (-400k) is not as much in favor of the shorts compared to last year, but still at a historically strong level. (Divergence) A seasonal turn in net positions usually indicates a top is near.
Large Spec Funds (red): In a long and strong position, but again, not as strong as last year (Divergence). In most cases I believe the commercials drive the market more than the funds. The funds like to ride the wave. Combined, the Commercials can hold 1.5m to 2.0m contracts. The funds peak out just under 500k contracts… With that said they can still have a major influence on the market, especially when open interest is low.
Open Interest: Currently at elevated levels compared to the 2011’-2017’ market, but well-off last year’s levels. Enough liquidity in a normalized market, but in a $7-$9 market expect high volatility and deep ranges/corrections….
US Dollar (Orange): Commodity markets struggle to stay strong for a long period of time when the Dollar is above 100.00.
The fundamentals to support a bullish market remain in place for this corn market. I still believe the job of this market is to see prices high enough to ration demand. A narrow focus on crush, feed, and export demand could argue that price has not rationed demand just yet. I would not discount a potential run up to 9.50 or even 11.00.
But other signals could be telling of demand rationing already. The strong dollar may not ration immediate demand, but it will ration future demand. Remember, this is a Futures Market. No chart attached - but the selloff across the equity markets needs to be monitored. Retail and fund investors have been more speculative into the current stock market and maintained highly leveraged (margined) positions. A continued sell off in equities could cause a major liquidity drain across all tradeable markets. Large Spec Fund’s may reduce their position out of the commodity space for some time. This will ration Paper demand….
Corn – Monthly Continuous: Competing with all time highs.
Commercial Longs (blue): Mostly End users hedged corn, bought to protect margins. Currently more than 200k less contracts compared to this same time last year with a market that is almost a dollar higher (Divergence). But, currently in line with previous years. I am surprised they are not as excited this year to hold more long positions. If they do get excited, I assume that will cause the next strong run up.
Commercial Shorts (yellow): Mostly elevators hedged corn bought from producer. Currently just over 1m short positions held. In line with 18’ and 19’ seasonal positions. Typically, a seasonal position between 800k and 1m shorts held by the commercials represents enough Natural selling to settle down the Corn Market. The commercial elevators appear to own a significant amount of corn. Is end user basis strong enough, and is the July/Sep inverse strong enough to move elevator owned bushels yet???
** In theory elevators are Shorts and end users are Longs. But in this strong demand driven inverted market I expect there to be spread positions placed from both sides to add another layer of protection. All this just makes for a more challenging market when positions are lifted and can self feed a trend regardless of fundamentals and technicals **
Commercial Net (Green): The spread between the Shorts and the Longs (-400k) is not as much in favor of the shorts compared to last year, but still at a historically strong level. (Divergence) A seasonal turn in net positions usually indicates a top is near.
Large Spec Funds (red): In a long and strong position, but again, not as strong as last year (Divergence). In most cases I believe the commercials drive the market more than the funds. The funds like to ride the wave. Combined, the Commercials can hold 1.5m to 2.0m contracts. The funds peak out just under 500k contracts… With that said they can still have a major influence on the market, especially when open interest is low.
Open Interest: Currently at elevated levels compared to the 2011’-2017’ market, but well-off last year’s levels. Enough liquidity in a normalized market, but in a $7-$9 market expect high volatility and deep ranges/corrections….
US Dollar (Orange): Commodity markets struggle to stay strong for a long period of time when the Dollar is above 100.00.
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