Hedge Funds Record Short Corn

July 29, 2013 01:04 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are fractionally to 3 cents lower, soybeans are 7 to 12 cents lower and wheat futures are fractionally to 1 cent higher. A non-threatening weather forecast is pressuring corn and beans, while wheat is trying to firm on improved demand hopes. Cattle and hog futures are expected to open the week with a mixed tone, though I expect cattle to favor the upside and hogs the downside.


* Hedge funds record short corn. As of July 23, hedge funds (managed money) moved to a record net short position of 83,361 contracts (futures and options). That was a whopping increase in the net short position of 46,099 contracts for the week, signaling hedge funds' increasing bearish mentality toward the corn crop amid non-threatening weather as pollination started across the Corn Belt. Meanwhile, index funds (many of which are long-only) held a net long position of 377,026 contracts (futures and options) and traditional funds were net short 42,160 contracts (futures and options) of corn as of July 23.

The long and short of it: Hedge funds and traditional funds are clearly bearish corn. The two keys moving forward are how far hedge and traditional funds are willing to stretch their short positions and if index funds will continue to maintain their presence in the corn market. Liquidation of index fund long positions is a potentially major source of price pressure for corn.

* More non-threatening weather. Temps are forecast to remain below normal across the Corn Belt this week, while there are multiple chances for light, scattered rains across the region. It appears the best chance for rains will come south of Interstate 80, while areas north of there will see limited rainfall chances this week until Friday. The computer-generated National Weather Service 6- to 10-day forecast for Aug. 3-7 calls for below-normal temps and above-normal rainfall across the Corn Belt.

The long and short of it: Forecasts remain non-threatening for crops and price-negative for corn and soybean futures.

* Japan may restart U.S. western white wheat buys this week. Japan may lift its ban on U.S. western white wheat purchases and shipments as early as this week, according to Reuters. Multiple industry sources told the newswire Japan's ag ministry held a meeting with handlers of U.S. western white wheat last Friday and appears on the brink of lifting its ban, though some issues reportedly still need to be addressed. Japan may ask USDA to certify all shipments of U.S. western white wheat were tested and free of GMO material before they leave the United States.

The long and short of it: A lifting of the ban could give wheat an export demand boost, but the bigger impact may be psychological.


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