The combination of a rather benign weather forecast and ongoing concerns about retaliatory measures with the ongoing trade war rhetoric have sent grain/soy prices tumbling lower to begin this week, with the heftiest pressure centered on the corn trade. July corn has actually left a gap lower, trading down to the lowest point seen since late April. If this hole is left unchecked through the close on Wednesday, theoretically we are left with a measuring gap and a downside target of at least 3.77 ½ and potentially 3.69 ¼.
It is expected that the White House will soon announce their compromise plan for the biofuels industry that will allow ethanol exports to be used towards quotas in exchange for year around sales of E-85, which sounds basically like the proposals that emerged from the last meeting with the administration and industry execs. At the time, Ted Cruz was gushing that it would be a win-win situation, which gauging from the source, should have made everyone in the bio-fuel industry rather suspect. Senator Grassley from Iowa remains on record saying he is not convinced that will be the case.
Managed speculative money continued to like the grain and soybeans markets last week in spite of the price performance. They added over 2,400 contracts to their long holdings in corn (202,427), nearly 9,000 more beans (107,098), and 17,000 wheat bring that position to a net long 15,318. They actually trimmed their longs in meals and covered a bit of the short in oil.
Crop progress reports will be issued this afternoon, and the trade is expecting corn planted to range between 95 and 98% and beans to be right around 90%. The preliminary estimate for corn crop conditions is looking for a good/excellent rating between 77 and 80%, which would be little changed from last week at 79%, but keep in mind, that did set a new record.
If you have not already, it is time to add a new term to your commodity vocabulary; Risk Premia Investing, as it would appear to be all the rage in the institutional investment world. In the past two years, these strategies have garnered around $20 billion in new investment money, compared with an influx of around $13 billion in “traditional” commodity hedge funds. Now you might think that this much money returning to commodity investment would be a good (price positive) thing but what separates this type of investment from managed funds or index investing is that risk premia is primarily looking for opportunities in momentum, volatility, spreads, etc. To a certain extent, price direction is secondary at best. On the positive side, this does increase volume and liquidity in the commodity world but on the other, probably would or will not do much to help enhance price swings. Of course, you are already thinking that the investment banks such as Goldman Sachs, Bank of America, Merrill Lynch or Citigroup who have devised these products, have done so for altruistic reasons or at least as a good faith effort to help bolster the struggling commodity industry. Well, it turns out the greater incentive may be the fact that fees are more lucrative here than in those boring old commodity indexes. They are just so last decade.