Tired Of Weather Talk? Keep An Eye On Funds

August 9, 2013 01:23 AM

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn futures are trading around 1 cent lower, soybeans are 8 to 10 cents higher and wheat futures are 2 to 4 cents higher. Cattle futures are expected to open lower on profit-taking following yesterday's strong gains. Hog futures are also expected to trade lower this morning.


* The bullish and bearish viewpoint on funds. Money managers have built a record short position in the corn market. The bearish way of looking at the situation is that funds have very negative attitudes and are actively adding to their bearish stance. The bullish viewpoint, however, is that managed money has built a record short position in the corn market and futures are still in the $4.60 to $4.80 range. The same bullish/bearish argument can be made for soybeans. The major difference between corn and beans is that funds are still long soybeans. The bearish viewpoint is therefore that money managers could move to a short position and drive the market even lower. The bullish way of looking at this situation is that managed money isn't fully committed to the short side of the market and the door is now open for them to rebuild a long position.

The long and short of it: Weather and demand are the fundamental drivers in the corn and soybean markets. But fund money flow remains key in the price-discovery process.

* China's economy showing signs of stabilizing. Worries over China's economy seem to be easing as recent economic data for July has been generally upbeat. The latest numbers to hit the market are inflation data and industrial output, both of which came in better than expected. China's consumer price index (CPI) stabilized at 2.7% above year-ago in July. Food prices rose 5%, while non-food prices were 1.6% higher than year-ago last month. China's producer price index (PPI) contracted for a 17th consecutive month, but improved to 2.3% under year-ago last month from a 2.7% drop in June. Meanwhile, China's factory output rose 9.7% in July compared to expectations for a 9% rise.

The long and short of it: China's headline inflation stabilized, the price producers get for their goods modestly improved (though still below year-ago) and factory output rose more than expected. These are all signs China's economy is stabilizing, which is positive for commodities and may help the sector put in a low.

* Cargill won't follow Tyson's lead on cattle. After Tyson Foods announced it would suspend purchases of cattle fed Zilmax as of Sept. 6, there were questions about how other packers would deal with the situation. Cargill said yesterday it has no plans to stop buying cattle fed Zilmax (or any other beta-agonist). Other meat processors have not made an official statement on the situation. Meanwhile, the head of the National Cattlemen’s Beef Association says his organization "stands behind the science" of beta-agonists.

The long and short of it: The initial bullish reaction in cattle futures has worn off. To find sustained buying, the boxed beef and cash cattle markets must confirm short-term lows are in place.


Follow me on Twitter: @BGrete

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