To start the month of July, grain futures made it past two major USDA reports and there is plenty to be concerned about.
To sum it up, the reports were not bullish. With this week being a holiday week, it is difficult to prove that grain futures are experiencing anything more than another short-covering rally. We have been here before which means resistance levels will be proof of a change in trend. With that, producers need to remain vigilant and use rallies as selling opportunities.
This isn’t a new phenomenon. This time of year is typically seen as an uphill battle against a seemingly bearish outlook. While the USDA is currently receiving most of that blame (rightfully so), the Funds are also continuing to sit on large net short positions for this time of year. That continues to be a bearish influence on price action as the funds continue to add to winning short positions at the expense of lower futures prices. Once again, it proves that money flow and the current fundamental outlook are important.
Based on last week’s commitment of traders’ report and action this week, it is estimated that the funds are now short over 300,000 corn contracts or roughly 1.5 million bushels. If true, they are only about 40,000 contracts short of their February record (340,732). Interestingly, this isn’t a counterseasonal trend for the funds. Three of the last four years have experienced the funds decreasing their net long position or adding to their net short positions going into the start of the growing season. As I have mentioned before, this year’s maintenance of a net short position in corn for the past nine months mirrors a similar pattern to 2019/20. Interestingly, in 2019, this week saw the funds start to reverse their short positions through September. Will this year be similar? There are certainly similarities.
Like corn, the funds added to their new short position in soybeans this past week. However, positions in both soy oil and soy meal are important to monitor. Last week, the funds recorded a new record short position in soybean oil at 108,483 contracts. That coincided with a fresh three-and-a-half-year low. Since then, soy oil has rebounded with help from other oilseed market movements. Soymeal, on the other hand, is the lone long market for the funds. They have started to liquidate their long position this past week and will be worth watching to see if it continues.
The funds are also maintaining a net short position across wheat exchanges. Seasonally, wheat exchanges rally this time of year with the winter wheat harvest now over 50% complete. That usually turns the trade’s focus back to global production issues which still remain plentiful. Unfortunately, the market is already aware of production concerns. With 2024 already being full of counterseasonal moves, will this year be different?
This week’s action is hard to gauge from both a technical and fundamental standpoint. The trade was up against a holiday weekend and despite grain markets only being closed Wednesday night and Thursday, most traders take extended vacations this week. With that, it’s easy to assume that the action this week may be no more than short covering. Again, with the funds still holding substantially short positions ahead of the long weekend, profit taking was likely taking place.
The first chance of seeing any fundamental changes to the current outlook will be Friday, July 12th with the USDA’s July monthly update. Based on the quarterly stocks and planted acreage report, it looks like it could be an overall bearish report. However, like I stated in last week’s article, it’s getting difficult to not believe that a majority of those numbers have already been priced into current futures prices. If they are, corn, soybeans and wheat exchanges will start to break past resistance levels. Until that happens, the current fund position will continue to pressure grain prices lower. At least in the near term.
Going forward, weather will have an even greater impact on market action. Particularly the extended forecasts. In the trade’s eye, the US corn crop is made in July while the US soybean crop is made in August. We are just starting a key month of weather for the US crop and I suspect it will be filled with plenty of market volatility. So far, forecasts remain nonthreatening, which have given further reason for the funds to add to their short positions. However, the US Midwest isn’t without issues. Flooding remains a concern and portions of the eastern Corn Belt remain dry. While any printed acknowledgment of these issues remains elusive, the coming months will make it difficult to ignore. At current price levels, there is arguably little to no weather premium built in the futures prices across the board. If concerns arise, buckle up.
Getting aggressively bearish on three-year lows is an emotional trap. In fact, it’s very comparable to being extremely bullish at $8 corn, $16 soybeans and $10 wheat. It’s crazy how just two years can change that psychology. Make sure you are managing your risk when you can and are taking advantage of opportunities as they arise. There are plenty of factors impacting price movement as we begin the month of July, don’t let emotions get in the way of your bottom line.
Allison Thompson is a market analyst with The Money Farm in Ada, Minnesota. She previously has worked as a Farm Business Management instructor and is active on her family’s Mahnomen, Minnesota, grain farm.
Allison Thompson is a market analyst with The Money Farm located in Ada, Minnesota. She previously has worked as a Farm Business Management instructor and is active on her family’s Mahnomen, Minnesota, grain farm. She recently purchased The Money Farm and has turned her experiences in the fields and classroom into a career where she is able to help producers facing the challenges of today’s markets.
