Corn prices rally on strong demand from China. We saw this same scenario last year where CFTC managed money covered 400,000 short contracts and built on their long position. A month later they realized that we still have over a 20% expected carryout to use ratio and they unwound their long positions. This year the market is pricing in speculation that China may increase its import tariff. Others in the market are concerned about dryness in South America due to the La Nina weather pattern. Both these things may or may not become true.
Feeder Cattle momentum hit 40, warning of some upside risk. The cash price supports this as it lingers near $1.40. We would expect this cash to futures spread to narrow-based on its history. Seasonally there are a lot of cattle sold this time of year, providing some downside risk. Yet, the biggest story is with the CFTC managed money position. They have doubled their short position with nearly no change in their long. This could be pivotal to watch. In early 2020 there was a similar downfall in price, but the bigger drop didn’t happen until the managed money started liquidating their longs. Will the longs or the shorts liquidate first?
Aluminum momentum rallied to 80 this past week, warning of downside risk. The LME Cash – 3M spread tightened, reducing the contango in the market. Port Klang closing for 2 weeks due to COVID-19 shortened physical supplies in the near term. The fundamentals are bearish in the long run. Year over year supplies are up 1% and demand is down 7%. Aluminum is being used as a hedge against inflation by managed money, as they have exited most of their short positions and built 50,000 long positions over the past few months. History shows that near-record long positions provide downside risk.