- Managed funds combined length in Chicago corn, wheat and soybean markets on Tuesday totalled 558,000 contracts, up 57,000 contracts (mostly in corn) from the previous week, the highest since the summer of 2012, when supply rationing was a must. A correction was needed. We estimate that combined fund length 465,000 contracts as of Friday’s close. Extreme market length combined with the ongoing spread of Covid and a US Presidential election will produce additional volatility. We caution against chasing daily price swings.
- Longer term, the market cannot avoid global cash market performance and the growing potential of adverse S American weather US ag markets will be demand led with any corrections producing purchase opportunities until record large S American crops can be confirmed.
- Soybean and product markets closed higher on Friday, with soybean oil pacing Friday’s advance.
- For the week, soybeans and meal were lower, while soybean oil was higher on rising world vegetable oil markets. Palm oil was down overnight, but Chicago soybean oil was still at a historic discount even after Friday’s rally.
- The Commitment of Traders report showed that funds were light buyers last week in the soybean market. Net length in soybeans increased 825 contracts to 232,700. In soybean meal, funds bought 2,700 contracts and were net long just over 84,000 contracts, or the most since June 2018. The largest position change was in soybean oil, where funds bought 12,400 contracts, lifting their net long position to 94,400.
- Cash markets were mixed this week, with domestic processing markets holding firm, while exports markets collapsed at the end of the week on sharply higher barge freight. But export demand at the Gulf remains strong, with the world’s next harvest still months out.
- Dec Chicago corn ended a cent lower. Deferred contracts ended slightly higher. Market strength despite another round of selling in crude is noteworthy.
- Managed funds on Tuesday were long a net 276,000 contracts, up 57,000 from the previous week. Fund length has now exceeded all post-2012 weather markets. Since Tuesday, funds have sold an estimated 60,000 contracts. Similarly active fund activity from both sides is anticipated through the release of NASS’s Nov Crop report.
- Yet, a fundamentally bearish spark is needed to sustain lasting speculative selling. Argentine dryness is already a concern given the lack of moisture in Aug and Sep. Interior US cash basis has likely formed its seasonal low. Black Sea basis has weakened amid elevated farmer selling, but the US remains the low-cost exporter for Dec-Feb arrival.
- Upside potential is substantial if yield is lost in S America.
- Dec Chicago wheat ended 5 cents lower. Other contracts ended near unchanged. Wheat-specific new is lacking but world cash markets remain firm. EU futures have been unwilling to break as domestic and export demand there looks to improve in the months ahead.
- Fundamental focus will be centred on weather in the near term and cash market longer term. Weekend precipitation will be regionally beneficial across Ukraine and SW Russia. A bulk of coming Black Sea rain will fall in the next 48 hours. Exact locations and amounts will be scrutinised Sunday evening. Additional rain is also offered to key areas of NSW and Queensland in E Australia late next week/next weekend. Sustained rainfall in E Australia into late Nov will begin to affect quality and force Asian milling demand elsewhere.
- Higher protein contracts will benefit most from additional supply loss. July KC’s discount to Chicago has fallen $0.25 since early October. This spread will continue to narrow into early 2021 as SRW seedings expand and HRW stocks contract.
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