Weekly Highlights
With a full week in the office instead of a road show across the Midwest, I decided to use this extra time to dazzle you with a new color scheme to match the rest of our graphics at The Brock Report.
This was a volatile week from a price perspective, discussed at length in this weeks Print Edition of TBR. We will have to wait until next weeks COT release to get a handle on how market participants shifted their allocations through the second half of this week, but lets dive into what we can glean from this weeks report first.
Highlights for this week
- Major Corn Buying is BACK…but it’s the funds this week, not large specs.
- Large specs were sizable sellers of the CBW markets, net position essentially unchanged from 10/8 despite high volume shifts each week.
- We think specs are done selling soybean meal (said this last week, we were wrong then, but now think this again). This despite their NEW RECORD net short position.
- Large specs were major sellers of lean hogs, could spark price collapse
- Specs continue buying cattle complex.
Corn
Large speculators were modest net sellers, as were commercials, a rare combination. Index funds were the major buyers adding 34,000 contracts to their long. The positive spin on spec selling is it was primarily long liquidation, as that outpaced short liquidation. ie. not new selling. It would not be surprising to see specs move to the sidelines until spring time when there is more fundamental news to trade.
Less fickle than specs, it’s good to see index funds adding length, and could be indicative of a bigger picture shift in corn fundamentals. As pointed out in TBR issues over the past few weeks, the global stocks-to-use ration excluding China is tight…
Tight enough it warrants an additional graphic. At 10.1%, this is the tightest balance sheet excluding China since 2012/13. See below.
Soybeans
Not a great look. Large specs were sellers of nearly 27,000 contracts, their largest net selling week since the Fourth of July week, through both long liquidation and new selling. We saw this selling, which keep in mind is through Tuesday of this week, in the price action as major support areas were breached prompting us to establish protection. As discussed in the lead story and on page 9 this week, we think (may be confusing hoping with thinking), that this was a bear trap.
Fundamentals are negative, but should be built into today’s price. Specs have room to either sell or buy significant quantities and still remain within their historical position extremes, but there is no doubt when looking below that they have been favoring selling rather than buying. Since October 8 (roughly short 50,000 contract) they have been net sellers of over 53,000 contracts. If we are going to see soybean futures start with an $8, it will be on this move and require additional spec selling.
Wheat
The last few weeks we’ve been saying that we hope the 160,000 short positions is as far as specs want to go, but they broke that barrier this week, and most futures contracts broke recent/October lows. The large spec shorts account for well over 30% of the total open interest, and this remains a supportive factor for prices.
Current positions of specs and commercials are not at extreme levels so it is hard to draw and significant direction at the moment. We feel fundamentally this market is underpriced, and the COT setup is more bullish than it is bearish when looking out for the next few months, but for the immediate future spec selling remains a bearish factor.
Cotton
Again, not a ton going on here. What we don’t like to see is two consecutive weeks of large spec selling pressure, the first occurrence since early September. The trend in prices is down, we continue to hold a short futures position, and there has been little new or technical action to cause us to question that position. Steady as she goes, this market will turn eventually and we do not see significant downside from the current price level.
Rice
Not sure what to say about this market. Lower lows and lower highs for 9 consecutive days, and all the large spec short liquidation in the world couldn’t slow it down as the price collapse accelerated Thursday and Friday.
As a reminder, despite this week’s issue being Diary in the Print Edition, you can find our weekly rice commentary here.
Soybean Meal
After approaching their all time largest net short position, specs were net buyers for two consecutive weeks, only to hammer the sell side this week and move into a NEW RECORD net short position.
This is as bullish of a market setup as you can get, and the market may have started to turn following this COT reporting period ended Tuesday. Prices collapsed on Wednesday, and much like soybeans, this appears to have been a bear trap as prices then exploded to the upside Thursday and Friday.
Keep in mind this has been a solid downtrend since mid September, so all of these large spec shorts are at a profitable level. We could see a massive unwinding of this over the next ten days. Light volume and year end profit taking could be a recipe for a quick rally.
Lean Hogs
The lean hog COT setup is exactly opposite soybean meal. Specs got within shouting distance of their all time largest net long, while commercials were well into record net short territory. This is about as bearish of a setup as you can get.
Specs were net sellers of over 7,000 contracts. This is only their third week of net selling in the last twenty weeks, or going back to July 16!! As we said the last time, we need to see consecutive weeks of net selling. Futures on Monday charted a moster outside day down, only grind higher the rest of the week and finish firmly higher Friday, with all contracts posting a modest weekly gain.
It is hard to say this party is over, but when the party ends we fear it won’t be guests gradually leaving…more like the cops coming to break it up. Be alert here, employ known-risk strategies like short futures with a protective long call, or just buy puts. We’d prefer the former.
Cattle Complex
This incredible buying spree continues, with live cattle large specs adding to their long for the 12th time in the last 13 weeks. Were in bearish territory with this COT setup, but not nearly as extreme as the hog or meal setups, and no sign that specs are slowing down quite yet. Major bearish reversals were posted in all live cattle contracts on Monday, and they didn’t find support until Friday, with most active Feb actually posting an outside day up off of trendline support.
We are certainly in the camp that there is more downside risk than upside potential. But with a mixed technical picture, specs still piling in on the long side and strong fundamentals, this may not be a market to jump right into. If Feb. breaks through $186, that may be your signal to take action.
The feeder cattle market isn’t quite as mixed. Friday’s action wasn’t nearly as positive, specs were sellers this week, and it still looks like there is a major top in this market around the $260 level.
