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GRAIN COMPLEX COT
The net long (disaggregated futures & options short format) managed money position in the grain complex increased to 434,902 contracts during the 5/1 reporting period, up 104,686 from the prior week and the highest since 3/20/18.
The funds increased their net long corn position by 63,440. They also increased their net long soy complex position by 14,257 while decreasing their wheat complex short position 26,979. Combining all classes of wheat, this is the first time the funds have been net long wheat since August of last year.
The net long soy complex increase of 14,257 is the most interesting change. The funds increased their net long bean and meal positions by 6,957 and 28,158 respectively while increasing their net short bean oil position by 20,814. The funds are net long a record position in meal and net short a record position in bean oil. These trades are crowded and it may be time to fade them, particularly with the U.S. and Chinese trade impasse far apart.
Looking at the last five years, the net long grain complex position is certainly near the high end of the range. However, it was higher on numerous occasions during the prior ten years.
Trade concerns, weather in key global growing areas, plantings, crop conditions and Thursday’s WASDE report will dictate market direction this week.
It’s early, but excluding the Western U.S. plains, initial US crop planting & conditions appear close to historic averages.
It’s not too late for global weather conditions to improve, but they remain concerning in key grain producing areas.
Given currency trends, shifts in trade patterns and higher prices, LA corn and bean acreage could increase significantly next year, further eroding US export market share. Chinese bean acreage is also expected to increase.
Ongoing drought in the U.S. Western plains continues while other U.S. weather facilitates planting.
Excluding prospects for minor rain in a small part of the Safrinha corn belt, the dry Brazilian and wet Argentine weather patterns continue.
Prospects for rain in the Ukraine, Russia and Canada may have improved over the weekend. Contrastingly, the increased moisture does not appear to have reached Australia.
Advance knowledge of changing weather conditions that already materialized could certainly be valuable, but weather is impossible to forecast with any degree of accuracy. Weather can change in a heartbeat and new adverse weather would no doubt spook the grain complex.
Given the dollar’s strength, Chinese trade/military/airline friction, the wide trade impasse, large U.S. stocks and the record/crowded net long fund position in meal, the soy complex could come under pressure. Spillover selling could also impact wheat and corn.
On a positive note, the outstanding soybean export sales are at a record high, but there is no guarantee they will be shipped. Without a trade deal with the Chinese, the lower end of this year’s trading range could be tested.
While Trump is right to challenge China’s unfair trade practices and intellectual property theft, criticizing the Chinese in public is not encouraging for a quick deal. Indeed, the entire U.S. political spectrum on both sides of the aisle is nothing more than the gang that couldn’t shoot straight or keep their mouth shut. They are, however, quite accomplished at leaking classified information. Sadly, the clock is also ticking on a NAFTA deal.
The increased long fund position in corn and the reduced short position in Chicago wheat are viewed negatively by this author. On the other hand, the long oil and short meal spread could boomerang. In addition to the record net long meal position, the funds hold a record net short bean oil position. At the same time, commercials have built a record short position in meal while reducing their short oil position significantly.
The corn export market is highly concentrated and dominated by the U.S., Brazil and Argentina. The big decline in LA corn production is quite tangible at this time. However, the alleged reduction in U.S. corn acreage is anything but tangible at this time.
While the lack of moisture in the Brazilian corn belt continues, early U.S. planting and crop conditions appear close to historic averages. The already low Argentine corn crop could, however, be reduced further.
Hard to see the upcoming WASDE supply/demand report anything but bullish for corn. Without serious rain in Brazil, the downside seems limited. A trade deal and or adverse weather would no doubt push prices to new highs.
While the U.S. plains drought damage is likely to linger, it’s not too late for other global growing areas to benefit from improved weather.
As noted, trading and accurately forecasting weather is impossible. Without improved weather, weakness should be limited. On the other hand, improved weather could quickly strip the premium.
The world certainly has old crop wheat stocks. Like corn, it is, however, hard to see the WASDE report not being friendly to a reduction in the stocks of the major exporters.
The upcoming WASDE report will also show world stocks without China for the first time. Depending on how one measures it, this dynamic has become price friendly in the last 5-10 years.
Like the fund’s increased long position in corn and the record long position in meal, this author does not view the short covering in Chicago wheat as price friendly.
This information represents the author’s opinion and is not for distribution. The information has been taken from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. The author is not an advisor or a broker, does not manage money, provide investment advice or make recommendations.