The bulls are running for cover

Published on: 13:28PM Aug 04, 2008
Margin call pressure is forcing all bulls out of the market today. The concern now is whether the funds going into today are still net long in both corn and beans? If cash flow drives the bulls out of the market, how far can we go down? The market has now corrected down to a double bottom formation. The test will be over the next 10 days or so. I have to believe most of the margin liquidation will be done prior to the report. The issue still is will we get confirmation of a bigger than expected corn yield—say 152 bu. to 154 bu. range. On the confirmation of the big yield, will we have any willing sellers at these price levels? In the end I don’t believe we will have a lot of new sellers because of the concern about frost. The problem is margin calls may override and force the final liquidation leg. I continue to believe the low in corn for this fall will be seen in the month of August and more than likely in the next 10 days of trading activity.
Special alert: This is time for all feed buyers and anyone wanting to be long for next spring and summer to be looking at buying December 2009 corn in a scale down buying strategy.
The big disappointment to producers continues to be beans. I’m getting a lot of calls from producers who stored beans and did not sell this summer. They are convinced the crop is not out there and they voted with their pocket book by keeping beans in the bin. Now that November beans have dropped 70 cents today and are below $13, the conviction of holding is getting tougher. I would not be surprised to see next week’s supply/demand report to be a little more positive to beans than corn. The yields will not be up as much. Near term I like buying beans a little more than buying corn. The current objective is the 5/8 gap on November beans. The top of the gap is $12.76 and the bottom of the gap is $12.37. I would suggest bottom pickers will be trying to buy beans on Project (A) tonight in the hope of getting a contrary Tuesday price bounce. Please note: the worse case downside price projection is the 5/1 low of $11.65.
Remember, I don’t believe there is any fundamental reason for this level of bearishness. It’s simply the funds are going from a net long to neutral to short bias. The size of their position simply moves the market this much.
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