It was a negative trade across the board in the grains this week. The corn market managed to close higher on Friday for only the first time in February. This broke a string of 10 consecutive trading sessions with lower closes.
Most of this week’s weakness had been attributed to overall slack demand as well as improved weather in South America. Some of the discussion this week centered on talk of continued exiting of the grain markets by some major index funds that had helped to provide support over the last several years. According to Friday’s Commitment of Traders Report, that is not the case in the corn market.
As of last Tuesday, the index funds hold their second largest long position in corn since last summer. The selloff in corn was fund-related, however, as the last week saw the largest one-week reduction of long positions by the trading funds since 2011. The index funds have not left the corn market; it was the trading funds that saw the technical weakness over the past two weeks as a reason to exit longs and perhaps build short positions.
The wheat market continues to be the market with the most potential, as the funds continue to add to short positions and are approaching their biggest short position in over a year. The percentage of open interest in the wheat market by both index funds and trading funds is at its lowest level in six years. The key in wheat is finding that trigger that can light the fuse for the market.
Given the scarcity of old-crop corn and the need for wheat to continue to be priced as a feed grain, it is very possible that the next catalyst to a grain rally may be found in the wheat market. We would look for low-risk ways to participate in a spring rally as we move toward the end of this month.