GRAINS TAKE A STEP BACK

Written By Sebastian Frost

MARKET UPDATE

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(Chart Breakdowns Start at 7:50 min)

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Overview

Grains lower across the board as the funds take a pause.

We've had a phenomenal rally.

Corn is 50 cents off it's lows, and both beans & wheat are nearly $1.00 of theirs.

Private analysts suggest the funds are now only short around 50k contracts of corn. They were short a record 356k back in July.

So the funds are nearly back to even, with not many reasons to necessarily get long. Hence they are potentially taking a pause with all of the unknowns out there.

Why have we rallied in harvest?

The number #1 reason we have rallied is the funds.

We are definitely seeing farmer selling on this rally, but the fund short covering has more than offsetting that selling.

The funds held record shorts not too long ago, but ran out of reasons to stay that short.

Now they are nearly even on their positions, looking like they could soon be waiting for a factor to push them one way or the other.

Fun Fact:
The funds have never not got long corn during a year. They have still yet to get long. Will they finally do so?

Chart from Karen Braun

Chart from Susan of NoBull Ag

Could they continue to cover? Absolutely possible. They still have a little room to go until they even.

If they continue to cover, it will probably be more technical driven rather than fundamental driven unless something changes.

We have break outs on the charts. We are at our highest price levels since June, so that means that short position is red since June.

Fundamentally there isn’t any one factor driving us higher.

Yes we have some war news.

Yes the USDA report Monday was friendly corn.

The river levels are back to normal with the hurricane rains. So this helps logistics & exports.

But we still have expectations of record crops.

The talk is that soybean yields are more disappointing than expected, while corn yield continues to be great.

StoneX released their newest estimates and they actually have the crop bigger than the USDA does. As they raised their estimates from last month. This is a customer based survey.

StoneX Corn: 184.0 (182.9 last month)
USDA Corn: 183.6

StoneX Beans: 53.5 (53.0 last month)
USDA Beans: 53.2

So perhaps the funds take a wait and see approach here sometime soon.

If they pause, it will likely result in a correction. As that farmer selling & hedge pressure won’t be bought with fund buying.

They still have room to cover their short, but it just seems unlikely that they flip long given all of the unknowns. It is possible, but would likely require a bullish factor such as yield falling, demand increasing, or a Brazil scare.

What could make them flip long?

The first reason they could flip long is…………

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In today’s update we go over..

  • Why could the funds cover?

  • Brazil rains

  • Chinese demand

  • Most concerning thing about this rally..

  • Spreads don’t scream bull run

  • Balance sheet breakdowns

  • Technical breakdowns

  • Why $4.60 corn is possible

  • Russia wheat story

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Sebastian Frost
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HEDGE PRESSURE
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CORN & WHEAT CONTINUE RUN