Canada Markets

The extreme volatility seen over the past month in grain and oilseeds markets had very little to do with changes in supply or demand fundamentals and almost everything to do with a sudden shift in investor confidence. Now that the dust appears to be settling, we must ask ourselves if the break was warranted and how the various market participants might move forward.

A picture is worth a thousand words and the accompanying chart shows just what outside participants thought of all the Department of Government Efficiency (DOGE) surprises and potential trade war developments. Given the heavy selling seen since Tuesday's Commitments of Traders (COT) cutoff (March 11), more of their long positions have likely been reduced yet.

But what about going forward? Much like a fire alarm during a good movie that empties the theatre, will those that left prematurely return to see how it ends? With the fundamentals remaining intact for the corn market, will these two groups buy back into the bullish thesis should the political landscape calm? Especially since importing countries have few alternatives to the U.S. for corn supplies, at least until Brazil's second crop corn is available (safrinha corn -- just finishing planting).

Managed money traders just want to be on the right side of a trending market, so the fact that support around $4.60/bushel and the 100-day moving average (on the daily chart) are both holding is encouraging. Higher highs and higher lows on long-term charts also suggest this has been just a violent bull market correction. So, it does appear that they may well turn buyers again should trade tensions and tariff wars cool and confidence in the Trump administration builds.

The commodity index traders are more interested in passive ownership of commodities as a hedge against inflation. With stagflation (high inflation, low economic growth and high unemployment) being as much of a concern as outright inflation -- they may very well want to look at buying back into some of these cheaper grains and oilseeds as well. The key will be to regain confidence in the Trump administration's efforts and the ability of the economy to avoid a recession.

The most interesting part of the correction was the actions taken by those dealing with the actual commodity (corn). In the week ended March 11, prices rallied $.35/bu off the low of the break. Throughout that, outside funds were still aggressively selling. So how did the corn market rally? The producer/merchant/processor/user group (commercial traders in the legacy report) were aggressively buying.

At first glance, it would suggest the group as a whole felt the fundamentals were bullish enough that they wanted to use the break to cover their short hedges. Or that those hedges were no longer needed and bought back on the break.

Upon closer inspection, 73% of the buying on the week was establishing new long hedges by those in the group wanting protection against higher prices. Only 27% was from covering short positions. That confirms strong underlying commercial support that could help turn prices higher, attracting the other groups back into the market.

Over the three weeks that outside participants were aggressive sellers, the producer/merchant/processor/user group were net buyers of 177,480 contracts or 887 million bushels (mb). With corn going into strong hands as it is known in the industry.

As we approach the April 2 implementation date for global reciprocal tariffs, if the market gains confidence that any changes will be more "leveling the playing field" instead of causing escalations in trade wars, those that left the theatre due to the false fire alarm may want back in to see how the movie ends. Investor confidence is key and should be on display soon enough.

For background information on the various market participants, see "Commitments of Traders Data: The More You Know, The Better" at https://www.dtnpf.com/…

For more on the underlying bullish corn fundamentals, see "Trade Wars Aside, Bulls Should Be Encourage by WASDE Details" at https://www.dtnpf.com/…

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I welcome feedback along with any suggestions for future blogs. My daily comments can be found in Plains, Prairies Opening Comments and Plains, Prairies Quick Takes on DTN products.

Mitch Miller can be reached at mitchmiller.dtn@gmail.com

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