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Rich Nelson: Funds buy heavily into corn market

07/22/2010 @ 11:00pm

Corn: funds bought heavily this week as outside market strength, reductions in European and FSU grain production, and fears that US weather adversity would reduce yields. Friday’s floor estimated holdings put the trading funds at 178,000 contracts long. Index funds were also expected to increase holdings. The CFTC report, which updates fund holdings, is out after our publishing deadline but is available on our website under Government Reports, Weekly, CFTC Commitment of Traders Report. You can also view a clear chart of outside money positions on the Special Reports section of our website.

Weather: We believe that this large fund position is vulnerable to liquidation. Although there have been many arguments about weather adversity, there is no blocking “ridge” in the forecast through August 10. This should allow enough moisture into the Corn Belt to provide adequate “filling” conditions. There are pockets of poor crops in MO, S IL and western IN as well as N IL and MI. But for the most part, we believe yields are still 163+. Secondly, demand is backing off the market. Cash bids fell 9 cents this week relative futures and many interior markets are posting “no Bid” for nearby. Quality remains a problem. New crop supplies will be anticipated and blended. Finally, the funds have built this huge position at prices above current values. They normally do not hold losses. This week alone, futures fell 16 ≤ cents and closed below critical 385 support. This sets the chart up with a head and shoulder top projecting prices to 360. Fundamentally, we expect a move to 360 area short term, then if yields verify, a move to 333 is likely. The summer high is most likely in.

Direction: We advised selling as a trade and took profit today. We have advised farmers to be 100% sold via option structures called a Box or 3-w. Most are sold between 390 and 460. If you need to get in position, call us. Last night I stopped by the office and we were still answering calls at 9pm. The Allendale broker wants to help you and is there for you. We look forward to hearing from you early next week. Have a great weekend..…Bill Biedermann

Working Trades:

·      (05/19) Sold September 330 put 8, risk to 15, exit at market. Closed 1 1/2.
·       (07/22) Sold December 399, objective 384 filled 07/23 for +$750.

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