- Funds are short a record (by far) amount of corn, wheat and soybeans combined for the middle of March. This week’s CFTC data was mostly in line with expectations, except for corn. Funds’ net short in corn on March 12 was a record 258,000 contracts, up a massive 81,000 on the prior week. The lack of any natural seller could trigger quick and rapid covering, particularly amid any hint of N Hemisphere weather adversity. A rather important growing season lies ahead, and already we’re concerned about US spring planting.
- Following a steady start to the morning Chicago soybean futures quickly rallied to new highs for the week, and were 10-11 cents higher at the close. China’s new intellectual property laws are viewed as favourable for trade negotiations, and the rally in CME hog futures has grain traders wary of staying overly bearish. The Commitment of Traders report showed that at the close of business on Tuesday, funds held a larger than expected net short position worth 90,000 contracts, a more than 40,000 contract increase from the previous week. Hedgers, on the other hand, used last week’s break to extend coverage and held a rare net long position worth 28,000 contracts. The last time that hedgers were this long the soybean market, it took a $1 rally to get them sold out. Chicago grain trade has been reluctant to show any optimism for a US/China trade deal. However, the CME livestock markets are far more certain. Our view is hopeful that a deal for China to greatly expand their US ag commodity buying can be announced in the coming weeks.
- May corn rallied another 3 cents on the return of heavy US rainfall in the 11-15 day period and as the trade begins to digest the potential of US-Chinese trade deal. However, the real highlight today was the CFTC’s commitment release. Managed funds on Tuesday were short a net 258,000 contracts, an all-time record and up 80,000 on the prior week. Any hint of Chinese demand or adverse N Hemisphere yield threats sends these shorts to the exit door rather quickly. Most important is that such extreme fund positions rarely last beyond several weeks. Recent weather-driven rallies have triggered a transfer in fund position worth 400,000 contracts, which would be a big deal. Otherwise, the EU and GFS weather models are consistent in forecasting additional rain and snow across the Plains and Midwest March 26-30. Reports of flooding and potential dam failures are getting more attention. Above trend N Hemisphere yields are needed to justify funds’ current net position.
- Wheat futures ended 2-10 cents higher, again led by CME contracts. Wheat’s premium to corn has fallen to an 11-month low, and so is close to working into feed rations across the Plains. Whether this makes sense or not will hinge upon weather in April and May, but as we discussed Thursday there’s very little room for SRW feed use. A correction in the spot wheat-corn spread lies ahead during the growing season. Temperatures across Europe and Black Sea have already been well above normal. A heavier burden lies upon EU/Black Sea rainfall over the next 60-70 days. Funds on Tuesday short a net 72,000 contracts (unchanged on the week) in Chicago and short a net 49,000 contracts (a new record and up 4,000 on the week) in KC. It remains that there is more upside than downside risk until trend/above trend yields can be confirmed.
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