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Da Bulls and Da Bears: February 9, 2016

 

Da Bulls

  • Fund short
  • Outside markets firmer

Irrespective of which source you use, funds are holding a fairly sizeable short position.  I’ve seen numbers in excess of 200,000 contracts of corn.  That’s more than a billion bushels.  They are also short more than 100,000 contracts of soybeans and more than 100,000 contracts of wheat.  There’s another billion bushels.  So, all in all, big numbers.  The last few days of trading are being attributed to funds buying in some of these shorts.  Perhaps they are just taking their profits out of the commodities and moving them to a long position in equities, as the stock market indices have risen recently.  Crude oil is also firming.  Maybe we’ve found a short term bottom in grains for now.  Other than that, for the time being, I don’t see much else to be bullish about. 

I hear some people talking about a weather scare in the US.  I can’t buy that just now, as soil moistures are adequate to very good in most of the US Corn Belt.  If we do have a weather issue, I think it’s more likely to be potential dryness this summer, and that is a long time from now.   Nothing to be overly bullish about at this point regarding weather. 

 

 

 

Da Bears

  • Farm stored grain
  • Strength of US Dollar
  • Crude oil

At the end of March, we’ll see the USDA report on not only planting intentions, but also stocks in all positions as of March 1.  By all accounts, there is still a very large amount of grain, mostly corn, being held on farm.  Once planting wraps up, many analysts expect this grain to come to town.  As this happens, we should expect to see basis levels weaken somewhat, in order to slow the influx.  I would expect basis to be rather weak through the summer.  As mentioned in previous communications, if you need to generate some cash flow, and are more bullish than bearish (futures prices), consider a basis contract against July futures.  This will give you until the end of June to price the futures component, and you can also get a cash advance of 75% of the current value, once delivery is complete. 

The US dollar continues to be relatively strong, and will continue to depress export sales.  The only good news I have seen recently regarding currency exchanges, is that the Brazilian Real has also firmed somewhat.  This narrows the playing field a little bit for US exports. 

Crude oil continues to be in the Bear column, simply because it is so far below previous year levels.  Yes, it has strengthened some recently, but relative to the past couple of years, it’s about 35 – 40% of where it was less than 2 years ago.  I continue to maintain that this will eventually be a good thing for the input side of the ledger, but until then, it will keep a lid on the value of corn.  

-Tom Guinan, Grain Origination Manager 

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