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EHedger Afternoon Grain Commentary 6/1/12
Jun 01, 2012
Grains had some wild swings today along with sharply lower outside markets. July corn closed 3 ¾ cents lower at $5.51 ½, July soybeans 4 ¼ cents higher at $13.44 ¼, and July wheat down 31 ½ cents at $6.12 ¼.
Coming into the day session the stock market was hit rather hard after some dismal jobs data. The May non-farm payrolls increased by 69,000 but expectations were for 150,000. The Unemployment number increased to 8.2% and the April numbers were revised lower as well. These numbers surprised the market and caused a rather large selloff in equities that spilled over to grains and energies.
Despite this early weakness July corn was able to find strong support for much of the day and at one time was trading 24 ¼ cents higher on the day! The reason for the roller coaster ride which eventually took corn back to new lows is unclear but the selloff started in the wheat market first.
Looking at the fund activity on the CFTC’s Commitment of Traders report, we can see that the "managed money" dropped their net long corn position by 47,529 contracts of corn using futures and options. That leaves them net long only 61,493 contracts of corn. What is really interesting is that they basically left their soybean position untouched during that timeframe adding 268 long and 740 shorts. As of Tuesday they are still holding a net long soybean position of 201,835 contracts using futures and options. The managed money is now holding a net long position of 15,585 contracts of wheat after a net change week – week of +8,558 contracts.
So what do these position changes tell us about price action? The managed money obviously doesn’t mind liquidating corn but have barely touched their net long soybean position. At some point if soybean fundamentals/technicals turn weak the liquidation of that trade may push that product sharply lower, just as it pushed wheat sharply higher recently as they liquidated a massive amount of wheat shorts. Weather is clearly going to be a big determining factor so we need to continue to watch the morning and midday forecasts. Today’s midday added some more moisture for next week and could be part of the reason the new crop contracts found additional weakness. Looking at the July – November soybean spreads and the July – December corn spreads it looks apparent that large money is flowing in/out of these products and I am reluctant to put any specific reason to today’s strange market action other than large money flow.
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