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Commentary
It is my opinion that the recovery in corn so far this week might be attributed to the surprise from the CFTC managed money position report that showed trend and index following funds were more aggressively short corn than previously estimated. The position reported for Tuesday and released last Friday was a net short 64K, a flip of 94K from long to short in 1 week. The managed money position in early April was approximately 190K long. It’s a big switch and flip. The managed fund unwinds in my view came on three fronts. First, tariff announcements that were way more aggressive and widespread had fund managers aggressively selling across the Board in early April. Second, big crops are being harvested in South America. This in my view increases competition for US origin although up until now we have not seen old crop demand losing market share. Third, the US crop continues to go into the ground at an advanced rate. NASS reported the US is 78% planted as of Sunday vs 67% last year and vs 73% average. Rains capping the week are recharging the topsoil and combating dryness in many areas according to many crop scouts.Over the weekend, heavy monsoon like rains is interrupting the harvest of this year’s corn and soybean crops in Argentina. The Buenos Aires Grain Exchange reports that a significant portion of the soybean crop remained unharvested in the region where the most intense rains fell, with more than 10” reported in a few locations. The most impacted area is in northern Buenos Aires, where roughly 530,000 hectares remained unharvested, and which are expected to show varying levels of damage for both corn and beans. This may take the top off the crop and give the managed money crowd a reason to short cover. I think what we have seen the last few weeks is funds clearing out their books ahead of US growing season. Currently they are record short soymeal. They are aggressively short wheat, corn, and a small, short in beans. The only significant long is in bean oil. I think there is value down here in new crop meal, beans and corn. Weather is going to have to be near perfect to attain a 181 yield in corn and 52.5 in beans in my opinion. While a possibility, I have doubts. I included a Dec 25/Dec26 calendar futures spread. I think there is opportunity here using a tight stop.
Trade Ideas
Futures-Buy the Dec 25/26 corn spread at a 16-cent carry (Dec 25 under).
Options-N/A
Risk/Reward
Futures-Use a stop loss at 21 cents Dec 25 under. Tight stop of 5 cents on a GTC basis or risk of approximately $250.00 plus commissions and fees. My longer-term target on a weather inspired rally is at 7 cents Dec 25 over. If achieved, would be a gain of 23 cents minus trade costs and fees.
Options-N/A
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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