Canada Markets

The tail end of two months of extreme volatility in grain and oilseed markets witnessed trading funds starting to buy back into their corn futures and options positions. With very few negative changes in supply or demand fundamentals and the initial break having almost everything to do with a sudden shift in investor confidence, it appears participants are eager to re-establish their long positions.

As you can see from the accompanying chart, surprising developments out of Washington inspired an aggressive fund long-liquidation event that began on Feb. 20. In a matter of six weeks, managed money traders (MM) and commodity index traders (CIT) reduced their combined net-long positions in corn futures and options by 433,391 contracts or 2.167 billion bushels (bb). For comparison, 2024-25 corn ending stocks are only expected to be 1.465 bb in total.

The entire $0.76/bushel (bu) break took place in the first two weeks with a test of the low three weeks later resulting in support holding. Throughout that time, the two groups of trading funds kept liquidating long positions while the producer/merchant/processor/user group took advantage of the break to buy back short positions and/or add to long hedges depending on their situation. All long-term bullish developments as positions went into strong hands.

Since the test of support held on March 28, it appears as though the MMs and CITs began regretting their selling and have been busy buying back some of those long positions. With the fundamentals remaining intact for the corn market, the two groups bought back 112,682 contracts or 563 million bushels (mb) during the week ended April 15 -- resulting in a $0.49/bu rally off support in two weeks.

As mentioned previously, managed money traders aren't concerned about direction -- they just want to be on the right side of a trending market. The fact that support around $4.42/bu held was encouraging to them, suggesting the trend remained higher. Higher highs and higher lows on long-term charts also suggested the market had just experienced a very violent bull market correction -- not an end to the rally.

As was also pointed out, 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 a concern as outright inflation -- they appear to have wanted to buy back into some of the cheaper grains and oilseeds as a hedge against inflation as well. With both groups appearing to gain confidence that the rally may not be over, buying has resumed.

Looking at the fundamentals, the USDA finally increased its corn export estimate by 100 mb in the April World Agricultural Supply and Demand Estimates (WASDE) report, resulting in a 75-mb reduction in ending stocks after a 25-mb cut in feed and residual use. Given export sales remain very strong amid a lack of global competition, that appears to be overly conservative yet. With total export commitments currently running almost 469 mb ahead of last year compared to USDA's current estimate for a year-over-year increase of 258 mb, further increases in the export estimate could be seen. The problem is, if ending stocks are already at roughly pipeline levels, where will the supplies come from? And at what price?

That brings the market to one important development to keep an eye on. The reciprocal tariff negotiations have the potential for increasing export demand unexpectedly. With the tariff calculation being entirely based on trade deficits, likely the quickest, most efficient way of satisfying the Trump administration would be to reduce the trade deficit by buying U.S. agricultural commodities. Japan and Pakistan have apparently offered to do just that with more countries likely to take their lead.

Where the supplies come from is another question; but should a strong rally in grain and oilseed markets result, it would certainly help boost President Donald Trump's popularity among his voter base and reduce the need for direct payments at a time when the administration is trying to cut expenses.

Finally, the discussion wouldn't be complete without a mention of the dramatic break in the U.S. dollar. With it starting 2025 on a high note at 110.015 (on Jan. 13), the break to a new low of 97.680 (on April 21) certainly helps put grains and oilseeds on sale for importing countries. At this point, there does not appear to be anything to signal a rebound other than maybe a temporary profit-taking bounce so one could expect currency weakness to help exports further.

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

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