Friday Surprise?

Published on: 16:05PM Sep 25, 2010

Beans were the surprise of the week causing both commercials and funds to go to the market. Commercials added nearly 100 million bushels to their short positions and the funds added 100 million bushels to their longs. That change is about 5 times the week to week change we saw last week which was twice the change of the week before. Fear has set in meaningfully, and that is the surprise. $13 is the magnet drawing prices now. The next few months should be very interesting because this is the largest number of longs (& shorts) we have had during the past ten years as my chart shows, and, I believe, the largest open interest ever. As prices rise, the funds will get longer. A crop that is significantly larger or smaller than expected should wreak havoc with the pricing. 

Corn reached its "price magnet" this week. Assuming "up" from here, then where? The next possible magnet is the 735 area, with $9 being the big and presumably unreachable place to go. A more reachable estimate based on technical work is the 585 zone. Like beans, this year’s betting has reached at least 10 year &, I believe, all time highs. As in beans, higher prices will increase fund longs, and, ultimately, the volatility.

Wheat is slogging sideways, with both the funds, long, and the commercials, short, liquidating their positions. The funds let go of 500,000,000 bushels last week. Looks like they are concerned about getting caught long if wheat were to collapse, although it is also possible they just wanted to put the money someplace that had better prospects of profit than long wheat.