The volatility continues in grains with the largest weekly corn break since coming off the highs in June 2011. The July corn contract dropped 57 cents from last Friday and is now at $5.78 ½. For the week July soybeans dropped 23 cents to close at $13.82 and July wheat down 15 ¼ cents and settled at $6.80.
This week was filled volatility. The poor corn sales on Thursday put extra downside pressure in the July contract. Wednesday’s ethanol production was stronger for the 4th week in a row but we had another uptick in stocks as well. The fact that wheat, corn, and soybeans all fell could have been partly due to a rising US Dollar. The Dollar Index gained 1.111 points week-over-week and is at the highest level since September 2010!
Chart: US Dollar Index
Overall a rising dollar can put negative pressure on dollar denominated products like commodities. Crude oil was down again this week for the 4th week in a row on a break from $106.43 as the high in May!
With the negative influence in outside markets we also had massive fund liquidation. From Wednesday May 16th through Tuesday May 22nd, the "managed money" liquidated 57,834 of their shorts in Chicago wheat!!! For anyone who didn’t see what July wheat did during this time frame, I have included a chart below where I have highlighted those 5 trading days.
Chart: July Wheat (this is what buying back 57,834 shorts looks like)
The "managed money" also did a number of positions squaring in corn, liquidating 40,005 shorts and 14,650 longs. Take a look at what July corn did in this same time frame.
Chart: July Corn
For soybeans they liquidated some longs and added some shorts to make a net change of -15,781 for that week. Even with a net drop in long contracts they are still holding onto 202,307 net long soybean contracts!! That is over a billion bushels.
The last thing I wanted to mention is weather. I have received a lot of emails about concerns over hot and dry weather. The latest midday report I have received still shows large rain even coming into the Midwest at the middle of next week. With the long weekend they may have been putting some extra premium in this market just in case we see any major changes to this forecast. Monday night’s trade will depend highly on the forecast and outside markets as 3 day weekends can see some large moves. We will just have to see what the forecast gives us. Have a great Memorial Day weekend! We will be back in the office on Tuesday morning. Click on the link below for a free 2 week trial of EHedger!
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