Technically Speaking

In an unusual position established just ahead of the primary period for Midwest corn pollination, managed money funds have taken a major stand with their near-record corn short position. Granted, we are entering a historical time frame, which, in a normal year, would see corn futures start heading lower into the fall past June 30. So far, the funds have been rewarded for being bearish corn, with Friday's bearish USDA stocks and seeding numbers helping lead to Monday's eight consecutive lower close potentially for December corn.

However, with the Fourth of July just ahead and the peak of the Midwest pollination phase nearly upon us, any problems with pollination could send short funds scrambling for the exit door in corn. In the week ended Tuesday, June 25, funds had amassed a net short of close to 300,000 contracts, having added a whopping 87,000 to shorts in that same week. If you look at the chart, and the last time funds were near this kind of position in February (328,000 contracts short), what followed was a 50-cent rally as funds slowly exited that short.

While it is possible the same scenario could unfold, right now, funds are being helped by a cooler and wetter trend in much of the Corn Belt as we enter the bulk of pollination. Should July turn hot and dry as many extended forecasts had previously alluded to, that could encourage funds to liquidate that position. Two other bullish backdrops would be the fact that crop scouts and South American crop agencies and exchanges have South American corn production as much as 12 million metric tons (mmt) (472 mb) to 14 mmt (551 mb) below that of the USDA. The jury is still out on the final.

However, for now, both the USDA numbers and the ongoing trend have been the best friends of funds. The corn market is approaching oversold, but we all know in trending markets it can continue longer than expected. Keep an eye on December with a potential volatile time ahead.

Keep an eye on August soybean oil. Friday's CFTC Commitment of Traders report showed managed money funds had added close to 25,000 contracts to their net bean oil short, which, as of Tuesday, rose to a new record short of 108,000 contracts. August is higher early Monday and for the fourth consecutive day, breaking above the 20-day moving average for the first time since early June. The fundamentals for soy oil usage for biodiesel looks promising with the strong energy market and summer driving season ahead. While being short has surely worked in the favor of funds, like corn, once they decide it may be time to bank profits, look for bean oil to make a move higher. The only question is when that might occur.

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Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of commodities, futures or options involve substantial risk and are not suitable for everyone.

Dana Mantini can be reached at Dana.Mantini@DTN.com

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