Weekly COT Highlights
We have slightly modified our formatting, moving the market analysis just above the charts for easy reference. Our fear is that you will not scroll through this an miss some great insights (like lean hogs). We welcome your feedback on the report and suggestions for improvement, please send an email to dbrock@brockreport.com for comments on this or anything else.
Corn – Good news is specs are still buying, and they did so in scale this week. Bad news is price action after Tuesday was poor, but there is no significant change to the technical picture. Expect to see continued speculative buying on strong demand during an otherwise news-less time of year.
The pace and scale of buying here is something. Specs have been net buyers for 4 straight weeks, for a total of 128,000 contracts. They’ve been net buyers for 10 of the last 12 weeks, for a total of 257,000 contracts. And finally since their recent massive net short, they’ve been net buyers 14 of 18 weeks for a total of 350,000 contracts. Now that we have that good news out of the way, I regret to inform you that most active Dec. Corn (most active the entirety of this time frame), is just 15¢ higher. Woof.
Keep in mind this buying was also paired with incredible demand growth in exports and corn used for ethanol. This give significant credence to the statement we have made many times, there just is not a lot of upside potential in this market. Rallies are meant to be sold, and that will likely be the case for the next six months, and potentially much longer.
Soybeans – Specs established a decent amount of new longs, and took a break from establishing new shorts for the first time in a few weeks. The risk to be aware of here is since they have built a decent size long, if contract lows do not hold there could be an aggressive unwinding of those positions, pushing prices 50¢ – $1 lower.
Wheat – After several weeks of doing absolutely nothing, we got what we didn’t want to see. As previously pointed out, speculative buying moved this category of trader into an area they frequently stop buying, around -65,000 to -50,000, and we feared they would resume selling. They did that this week, as net sellers of 16,268 contracts of SRW and nearly as much KC wheat, pressuring prices to near contract lows. Thankfully hedgers have a sizable short on, if you don’t, this is not the spot to chase it. We guarded our position with a protective stop on Friday and will continue to do so next week. If we break contract lows, that might be your signal to get on board, but at this price level we would urge you to exercise caution.
Cotton – Still glean from this Friday’s report. It’s worth pointing out that specs have been establishing new longs and shorts at about the same rate for the last 6-7 weeks. Not sure what to make of that, if there is anything to make of it. Hedgers hold a significant short, and Friday of this week prices broke through the bottom of their downward trading channel. We expect next weeks report to show significant net selling on behalf of the large specs.
Rice – Tremendous large spec selling pressure unfolded the last two weeks, and prices reflected that. Large specs are now net short 3,050 contracts, a record in our data that goes back to September of 1995! With the late week rebound in prices and spec shorts accounting for 41% of total open interest, we could see a sharp rally in prices.
Soybean Meal – The good news is spec long liquidation stopped this week, the bad new is new selling was a key feature. As pointed out this week we are in a 5th wave down, which is often an exhaustion leg followed by a sharp rally. Buyers should be on the lookout for technical buy signals, though it is too early to say with confidence this move lower is over. The potential for a sharp rally is very present.
Lean Hogs – Our love affair with the lean hog COT grows stronger by the day. As you know the last couple of week’s we warned that the large spec position was entering a territory that is extremely bearish for future price action, and that we believe a significant selloff is coming. We took action on that Friday as extremely aggressive sellers. We had been watching the $84 level in Feb, and discussed recommending a stop on a close under that Thursday, but at the time of our meeting we were a couple of dollars above that so chose not to send the rec as white noise…it did close under that Thursday and followed through lower on Friday. Lesson learned.
We have to rehash this move though!!! Large specs have been net buyers for 13 consecutive weeks, and 17 of the last 18. An unparalleled move. The all time largest net long is around 100,000 contracts, and with specs sitting at 85,000, fundamentals shifting more negative, and long-term support breaking late in the week, we believe this unwinding has started.
Live Cattle – Spec buying is continuing to prop up what we think is a market that has made a major top. As you can see via the red line immediately below, we’re at about the 4.5 year mark of a bull market that just won’t quit. Do not let the last couple years of high prices erase the memory of 5 prior years of cattle prices in the $100-$140 area. The fact that this last wave of buying only moved prices $15 higher, and subsequently fell $5, gives us more confidence that this is a major top. Fundamentals may prevent prices from falling too far, but a 50% retracement of the 4.5 year bull market (an admittedly ridiculous sentence), would take prices $50 lower, to around $130.. Not a prediction, but an illustration of the amount of air under this market.
Feeder Cattle – Speculative buying has stalled out. On our Friday conference call, which took place before the price surge, we decided to exit our November position at the market. We are still short 50% of first and second quarter. Frankly, this report re-affirms our desire to be short, but the technical price action Monday will dictate what we do in the markets. Be alert for additional exit recommendations.
