Grain Spreads: Unwind

Sean LuskGeneral Commentary

Trend and Index funds have flipped their massive short grain positions in the market since early May. They were record short across seven grain contracts to the tune of approximately 750 K shorts. Last week they were short just 45 K across corn, soy complex, and all wheat classes. There’s a lot of noise about delayed plantings now being priced into the market for now. I’m not so sure but we will get an estimate from the USDA’s stocks in all positions and planting progress report next Friday 11 AM Central. As funds were short corn 370 K corn in late April/early May, they summarily have covered those positions and built a decent long in the market long of 121 K per last weeks COT report. There’s a sense that funds are looking for further reasons to extend long positions from current levels. What we have seen instead near term are rallies stalling at 460 (CZ19) due to a big crop report next week, option expiration in the July contract today, and first notice day next week on top of month and quarter end in my opinion. Some forecasts call for a drying out finally in the Midwest after this weekend through the first week of July. We will see as multiple forecasts are flip flopping on rain totals and coverage day by day. Corn acres could be down 10 million by the time its said and done or only down 3 million per the USDA next Friday. Remember the March quarterly report found an additional 300 million bushels of corn lying around. A Bearish surprise. Next weeks report usually offers volatile moves in my view but once we get past it, weather and its impact on future yields will be the chief driver for price in my opinion. The USDA has announced that field reports and surveys on acres are being counted later than normal in June due to the wet weather for a more precise effort to count acres. My worry for the producer is that the USDA is going to look at the elevated price of corn vs the last quarterly report and give a conservative report on acres (not adjusting much lower), knowing they can make further adjustments in subsequent or special reports down the road. This is simply my opinion but if I am playing the report, I would take positions both ways amid the uncertainty. Call me for trade ideas and any questions. I hold a weekly grain and livestock webinar every Thursday at 3 pm central. We will be discussing pre-report guesstimates on next weeks quarterly stocks report on the webinar. 888 391 7894 or slusk@walshtrading.com