We have had three instances in the last ten years where managed funds have been short seven grain contracts. Funds have consistently been short all three wheat classes plus corn and have been selling rallies in these contracts since December. The soy complex has seen them flip from short to long to short again recently as a severe weather premium failed to sustain late in South America. Then there is off course a trade deal or compromise failing to materialize with China amid continuing trade drama with the EU and NAFTA 2.0. Our last two government reports (1st QTR Stocks&Prospective Plantings and WASDE) were largely bearish vs expectations showing larger ending stocks both domestically and globally.
Current Managed Money contract short positions as of 4/9/2019. Corn -290 K, Soybean -70 K, Wheat -56 K, KC Wheat -49 K, Soybean Oil -32 K, Minneapolis Wheat -9,500, Soy meal -7,400. I cited COT data from their latest report as of last Friday 4/12. The total shorts here total approximately, 513,900. I’m not sure this is a record short for all 7 grain and oil seed contracts, but in my opinion if its not its darn close. Again my opinion here. Weather and Demand in my view will get these funds to cover some if not all in the weeks to come. In years past we have seen funds “clean out the books” regarding positioning ahead of planting/early growing season. Funds long grain into and through January await to see if there any growing issues in South America before exiting longs into the quarterly stocks report and look for a low to re-buy the market in the Spring amid planting and early growing season future uncertainty. This year is different as funds have amassed a half million contract short in the market even as corn and bean plantings look to be delayed. If we step back and consider that we are in a trade war with our biggest Ag buyer, it should be no surprise that funds sit with a heavy short in my opinion. Coincidentally the last two times since 2009 that funds were short all 7 contracts was late November 2018 and late April 2017. We saw sizable rallies in some of these contracts when funds went all in short. Will this time be a third? Weather and Demand will be the key deciders in my view. Until then funds will continue to sell rallies until there is a reason not to and short cover.
Corn: Buy the Sep 19 4.00/4.40 call spread for 7 cents plus commissions and fees
Corn Hedge: Work to buy the Dec 19 4.00 put for 25 cents. Sell 2 of the Dec 19 corn 450 calls for 13 cents apiece plus commissions and fees. This 1 x 2 put/call ratio settled at a 12 cent debit today. We need to Dec futures to trade between 397-4.00 to be able to buy and sell the options at the desired prices in my opinion.
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