Weekly Highlights
It’s been a very educational two weeks on the road as we held seminars in Omaha NE, Sioux Falls SD, Sleepy Eye MN, Lansing MI, Lafayette IN, and Bloomington IL. Thanks to everyone who came out to visit and chat.
This week we return to placing the market commentary within the corresponding chart section, so be sure to scroll through today’s COT Analysis
Highlights for this week
- Major Corn Buying is BACK.
- Large specs were buyers of Corn, Beans and Wheat
- We think specs are done selling soybean meal
- Specs resume hog buying (kinda), within 9,000 contracts of all time largest net long (2014)
- Specs continue buying cattle complex.
Corn
Large specs were net buyers of 62,115 contracts, through modest short liquidation and significant new buying. The new buying is the most positive sign. It’s important to note that this data is current through Tuesday, which was the day of the most recent USDA report that slashed ending stocks 200 million bushels. A good portion of these new longs likely entered the market Tuesday, and we must also note that these longs are already under water as prices faded after challenging significant resistance.
The commercial selling of over 85,000 contracts is consistent with what we heard on the road and wrote about in this week’s Brock Report, farmer selling has been aggressive on this rally. Those who were undersold going into harvest were anxious to sell on any rally, and they did. Unfortunately, most rallies will be met with farmer selling so don’t expect to see $5 corn anytime soon.
Bottom line is specs are continuing to buy this market, and commercials are continuing to sell as farmers haul in their crop. This is a modestly bullish setup, but March failing to break through the $4.50 level doesn’t look great. We could easily retest support at $4.30 and trade within this range for several weeks.
Soybeans
A pretty mild week. Large spec net buying is positive, but it was almost entirely through short liquidation as they added just 1106 long positions. This COT doesn’t give us much direction right now. Specs are moderately more short than normal, hold a good number of longs and shorts, which basically means they have room for new buying, new selling, short liquidation, or long liquidation.
Bean price action is in a bad news/good news spot. Fundamentals are extremely bearish is the bad. The good…everyone in the market knows this so you have to operate under the assumption it is built into the market. When fundamentals are extremely bearish, there is only one direction for them to go. (Famous last words)
Wheat
As we said last week, specs hold a lot of shorts, about 160,000 contracts, and as you can see three charts below, they frequently liquidate when they get into this territory. This short position is over 30% of total open interest, and they have been increasing their number of long positions for four straight weeks.
Bottom line is this is a decently bullish setup. Pair that with a global balance sheet (see page 3 this week) that is contracting for the XXX consecutive year, plus futures sitting on August and December lows, and we favor the upside. That said, resistance off the May and Fall highs is very nearby. There is no reason to get long at this point until we take that out, and no reason to get short until we take out the August lows. We’ll let the market tell us what to do.
Cotton
Not a lot going on. Bigger picture, specs are much closer to their extreme short position than they are their extreme long or even average position, so that’s a positive. If something fundamentally could spark specs, even if it is just a short covering event, it could move prices a few cents higher. Fundamentally cotton is similar to soybeans, there is much more room for fundamentals to become more friendly than become more negative.
Rice
The spec short covering we called for is continuing, but the accompanying price rally is not. In our defense, we admitted there is not nearly the price correlation to spec activity in rice as there is in the corn, soybean and wheat market.
For our rice folks out there, we hope you noticed that we are publishing a rice page every week! Even when we have dairy in the print edition, you can find rice commentary on the website. Click here for this weeks Brock Report Rice Page.
Soybean Meal
Last week we made the comment that specs may be putting a bottom in the meal market. After selling 150,000 contracts in 8 weeks, specs have now been buyers for two consecutive weeks, though the quantity was very modest. For a market that has had very little good news, we will take two straight weeks of new buying and short liquidation.
The price trend is still down, not time to get bullish meal. That said, two weeks ago specs were within 4,000 contracts of their all time largest net short, so there is a ton of potential buying sitting there. Commercials are not at an extreme, and you typically need both for a real snap back in prices. Small traders are still long this market, it may take washing them out for us to feel comfortable this move lower is over.
Lean Hogs
If you have not been following our commentary here you’ve been missing out. Frankly, it’s been fun covering this ‘historic’ event. Very modest buying this week means that specs have been buyers for 20 of the last 22 weeks, producing a total net buying of 124,961 contracts. We’d love to see ’em buy 39 more to make it an even 125,000. Their largest net long in history was 100,000 contracts back in 2014, we included a longer term chart two below so you can see just how extreme this position in.
Importantly, commercials are at a record net short currently. This is the perfect storm to create a massive rally. If fundamentals can contribute, be prepared for an absolute washout in prices.
Cattle Complex
The cattle complex is setup for a major correction downward as well, but specs are not quite at the extreme that they are in hogs. Specs were modest buyers this week, now holding a net 98,000 contract long, which compares to their all time largest net long of 137,000 contracts. The timing of this trade could be tough. You can see below in 2014 it took months after specs started liquidating their record long to start a multi-year bear market in prices. The following peaks in 2017 and 2019 were also followed by huge sell offs.
Given that we are nearing the 5 year mark of this bull run, hedgers need to keep a close eye on this market. It is not going to be easy but don’t be complacent. Every major bull market is followed by a major bear market, that’s a rule in commodities. If you don’t like it head over to equities. What will trigger a selloff, when it will happen, and how to best capitalize on it are the more important questions. The other question we need to ask ourselves is can large spec selling break this market? There have been many net selling event during this bull run, and prices continued higher. One thing that may be different this time around is that all of the long accumulated in this buying spree are at all time highs. Large specs won’t want to be bag holders in the event of a sell off, so a significant and swift selloff feels more likely this time around.
