Corn Open Interest Declines

Published on: 16:06PM Apr 30, 2013

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Monday’s limit up move was followed by more strength overnight but couldn’t hold through the day session for corn and soybeans. December corn closed 2 ¾ cents lower at $5.56 ¾, November soybeans 5 ¾ cents lower at $12.23 ½, and July wheat 14 ½ cents higher at $7.31.

Corn was only 5% planted as of Monday’s report which was slightly less than the market had been anticipating.  Despite this slow planting pace, corn was unable to close higher even after testing the critical $5.70 level in the December contract.  Yesterday we discussed the potential for this rally to be based on short covering.  Today that was confirmed with corn open interest down by a substantial 32,338 contracts!  This is on top of the 35,978 contracts of corn liquidated on Friday.  In a declining open interest market with sharp moves we can’t rely on the direction holding course.  This is because when we see that many contracts leaving the market in a disorderly "fear-trade" fashion it can result in mispricing as traders drive the market higher or lower than they would when they are not in liquidation.

Obviously the market has been pricing in a strong weather premium.  This can be seen in the new crop corn-soybean ratio as many acres are expected to switch from corn to soybeans. The new crop corn-soybean ratio is at the lowest it has been since January.

November Soybeans / December CornNovember Soybeans - December Corn

Meanwhile wheat was the strongest market on the board today. Much of the strength was based on crop reduction fears.  The latest crop ratings show wheat at only 33% good-to-excellent compared to 64% last year.  Spring wheat is only 12% planted compared to 37% on average.

Rains are still expected for much of the Midwest this week.  In a weather market sentiment leads the moves and right now the uncertainty seems to be enough for large money to flow to the buy side.  As a producer with guaranteed bushels we want to use these opportunities to make additional hedges, especially if you were able to buy the short dated calls that we recommended last week.  Please feel free to sign up for our newsletter to get our recommendations emailed to you.  Have a great week!

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