EHedger Closing Grain Commentary 5/27/11
May 27, 2011
Corn made another sharp move higher today while soybeans couldn't keep up the same support. July corn finished 13 cents higher, July soybeans 5 cents lower, and July wheat 5 ¼ cents higher.
We are now at new settlement highs for new crop corn at $6.84. Planting concerns are still keeping corn strong and beans weak. With November soybeans trading at $13.84 ½ the corn/bean ratio is at almost exactly 2.00 to 1. This still puts the financial incentive to corn where available. Early estimates and polls are putting corn acres much lower than the original USDA projection. Obviously we are having a lot of problems in the eastern Corn Belt and North Dakota, but they may not be projecting any sort of gain in corn acres for areas that could plant. If these estimates are in-fact discounted in the market, it doesn't leave much room for the June 30th report to still have a very bullish effect. This of course is a long ways off and much can happen between now and then, but it is something to note.
The CFTC Commitment of Traders Report was released this afternoon. Over the past 4 weeks in a row we have watched corn net longs reduced, until this week when we had another sharp increase in net longs by managed money. To put this huge disparity in holdings in perspective to last year consider this: Last year on May 25th, the index funds were holding net long positions of over 2.02 billion bu of corn while managed money only held nearly 400 million. Now managed money is holding about 1.56 billion bu of corn compared to 1.24 billion for index funds.
Last year at this time we were also trading at $3.59 in front month corn.
Why does this matter? For one it is a much bigger position that could affect the market negatively if they were to get out. Second, managed money is not always the typical "Buy and Hold" capital, they could be more likely to run for the exit if things turn bearish. If the weather turns for the worse, obviously we could see a round of short covering and another sharp rally. But given the market has likely factored in everything bullish so far, we may need to see more weather catalysts to keep the rally going. I have included a chart of corn and a chart of soybeans depicting holdings by index funds and managed money.
For now we like to remain with current hedges and the call spreads for upside potential. The markets will be closed Monday, and we will be back in the office on Tuesday morning. Have a safe and happy Memorial Day weekend.