So far in 2017, May corn has traded within a 33-cent range, between a high of $3.87 1/4 in mid-February and a low of $3.54 1/4 on March 27. Even though prices were down in March, the low is still over 20 cents higher than the low May corn prices left behind last August when traders were anticipating a record U.S. corn harvest.
I mention that because Friday's CFTC's weekly Commitment of Traders report showed commercials net long in corn for the second consecutive week as of April 4 -- a bullish show of support for corn prices from the companies that know the most about corn demand.
The last time corn enticed enough buying to put commercials net long, spot prices were below $3.35 a bushel, just as harvest was getting ready to begin last August. It was reasonable to think that commercials wouldn't reappear until we got that low again, so it was surprising to see commercial net longs pop up this soon in CFTC's reports with spot prices in the low $3.60s.
At the same time, noncommercials turned net short on March 28 for the first time since last fall. The change is understandable as noncommercials are known for being trend followers, and May corn broke a new low in early March. But unlike commercials, noncommercials don't know much about the corn business. Noncommercials seldom go net short in corn, and when they do, they tend to be wrong.
Put these two clues together -- commercials turning net long and noncommercials turning net short -- and we have strong reason to believe that the sell-off in March has brought corn prices close to a price level where they likely have significant support. It should also be noted that this change happened before USDA estimated 90 million acres of corn plantings on March 31.
At this point, we have to say that commercial support for corn prices is still passive as futures spreads don't show any sign yet of commercials bidding higher for front-month contracts. Similar to what we saw in 2015 and 2016, commercials provided support for spot corn prices around $3.50 early in the year, but it took weather scares later to actually send prices higher.
We can't say yet if or when a weather scare might lift prices this year, but early in 2017, commercial activity suggests that corn prices are offering good value right where they're at. This requires monitoring, but it looks like good news for producers with planting season making its way to the Midwest.
Todd Hultman can be reached at firstname.lastname@example.org
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