Funds have been liquidating longs in the commodity sector on recession fears. But is there evidence yet that inflation has peaked or that the economy is moving into a recession?
Experts say one signal is the yield on the 10-year U.S. Treasury note is off its highs, another clue ... falling commodity prices. Crude oil, wheat, natural gas, lumber, corn and other raw materials ended the quarter near or lower than March prices.
A JP Morgan Chase commodity strategist says about $15 billion dollars moved out of commodity futures markets during the week ending June 24. It was the fourth straight week of outflows, bringing the dollar amount pulled from commodities this year to about $125 billion. That’s a seasonal record that tops even 2020.
The latest Commitment of Traders Report shows as of June 29 the funds liquidated nearly 37,000 futures and options contracts of corn. They are now long only 228,000 contracts, their smallest position since October 2020.
Funds also exited nearly 30,000 longs in the soybeans and 14,000 in cotton. And this doesn’t count the liquidation the last few sessions as long term chart support was taken out.
DuWayne Bosse with Bolt Marketing says, “They just decided I don’t want to be long anymore I think the recession fears are really starting to spike higher.”
Brad Kooima of Kooima Kooima Varilek, “The money manager does he want to throw money at something like that when there’s probably something that in his view is a safer place to ride out a recession, like an interest bearing instrument perhaps?”
Funds are now only about 1000 long contracts in the Chicago wheat market, and only about 25,000 contracts long in Kansas City wheat, which is a 51-week low. In fact, wheat prices are now at pre-war levels.
Mark Schultz, Northstar Commodity, says, “It was a bad week across the board and I think the worst of them all was quite frankly has been the last two weeks of the complete destruction of the wheat market and wheat pretty much led this market to the upside and its now leading it to the downside.”
More favorable weather is also pressuring the grains. So, without a major change in the forecast, analysts say there may be more liquidation ahead.
