Grains ended higher on Tuesday in typical Turn around Tuesday fashion after massive fund selling to start the week. However, any strength in the market continues to be sold by the fund and algorithm traders according to DuWayne Bosse, Bolt Marketing. He says they have a near record short position in the grain markets. In fact, they hold the second shortest combined position across corn, soybeans, meal, oil and the three wheat classes. It is only surpassed by the short in May of 2019 in the middle of the trade war with China.
In the corn market alone funds are short 265,285 futures and options contracts as of January 23, according to the latest Commitment of Traders report put out by the Commodity Futures Trading Commission. This is the third shortest position in corn since 2006. However, Bosse says the trend has been working for fund managers and so they could continue to add shorts since the record is around 322,000. In soybeans funds are short 91,842 contacts, which is the largest short position they have held since February of 2020.
To get the funds to cover those short holdings would take a major catalyst or fundamental change in the market. Currently, Bosse says he doesn’t see anything bullish enough to make that happen. In fact, he says the news is bearish for corn with a 2.16-billion-bushel carryout. Demand concerns have also crept back into the market with mounting signals of economic slowdown in China.
The one potentially bullish hope was a smaller corn and soybean crop in Brazil due to their historic drought, but Bosse says the likelihood of that is starting to fade as well. While crop estimates in Brazil have continued to slide on soybeans the actual crop size may not be anywhere close to the lowest estimates in the 130 to 135 million metric ton range. Bosse says the evidence of this is the swift drop in basis levels for soybeans in Brazil. “That would indicate that farmers in Brazil are selling the crop as it is harvested and are not worried about production losses,” he says.
Conversely Bosse is also more bullish about the cattle markets in part due to the speculative position, with a net long in live cattle of 17,372 futures and options and only 1,561 in feeder cattle. When the cattle markets hit record highs in mid-September of 2023 the funds were long in the live cattle market over 110,000 contacts. They sold as prices broke into the end of the year and went flat to slightly short in the live and feeder cattle futures. Bosse says with the strong technical chart patterns he thinks that will attract fund buying. “They definitely have room to add long positions,” he says.
Cash cattle trade has been firming the last two weeks, weights are finally dropping as a result of the harsh winter weather and Choice boxed beef prices are hovering around $300. He says those are all supportive features to the market and a positive USDA semi-annual Cattle Inventory Report would likely reinforce that bullish momentum.
