Fund Window Dressing Has Started In Corn

December 5, 2013 12:13 AM

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn and soybean futures are 1 to 3 cents lower, winter wheat futures are mostly 3 to 6 cents lower and HRS wheat futures are narrowly mixed. Weekly export sales will have a significant say in how grain futures open the daytime session. Cattle futures are expected to be mixed as traders await cash cattle trade. Lean hog futures are expected to open under pressure following a low-range close Wednesday.


* Funds covering some shorts in corn. Year-end positioning appears to be underway in the corn market as funds have been net buyers of 17,000 contracts (85 million bu.) of corn the past two days. This isn't funds adding new long positions, it's funds covering some of their massive short position as the year winds down. With funds still holding a hefty net short position, there's potential for additional short-covering into year-end, which could provide price support to the market. But given the dramatic fundamental shift in the corn market due to this year's record crop, funds will remain very comfortable maintaining a sizable short position.

The long and short of it: Fund short-covering could provide corn futures with short-term price support. But there's not a strong bullish catalyst in the corn market, which limits the upside to corrective buying.

* Export demand must stay strong. Traders have grown accustom to very strong weekly export corn and soybean sales figures over the past month-plus. In fact, corn and soybean sales have consistently come in at or above the pre-report guess range during this period. Because of that, expectations for this week's sales are again strong. Traders are expecting corn sales between 850,000 and 950,000 MT and soybean sales between 900,000 and 1.2 million MT in this morning's update. That may be a little optimistic given the reporting period included Thanksgiving.

The long and short of it: Because expectations are high and big weekly export sales are expected, there's greater odds for disappointment.

* Shockingly big Canadian wheat crop. Yesterday I said traders were fully anticipating a bigger Canadian wheat crop and it would take a shockingly big estimate to weigh on wheat futures. Well... Statistics Canada released a shockingly big all wheat crop estimate of 37.530 MMT, up sharply from its prior forecast of 33.026 MMT. The pre-report guess range was 33.325 MMT to 35.300 MMT. Stats Canada also raised its canola crop estimate to a record 17.960 MMT and its barley crop estimate to 10.237 MMT.

The long and short of it: The huge Canadian wheat crop estimate means there's even more competition for U.S. spring wheat than previously thought. If there's going to be a price rally in wheat, the winter wheat markets must lead the move higher.


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