Grain Prices: Back to the Futures

We noted in our May 1st Monthly Outlook summary points that the fundamentals promise bullish support for corn and soybeans prices in the near term, while less so for wheat prices. We often look to the CFTC’s weekly Commitment of Traders (COT) report to give us a better sense how the underlying futures speculation supports or casts doubt on the near term price outlook.

Keep in mind that the COT report is a rear-view look at the previous week’s trading. Even so, we can use this information to validate our assumptions of how the large speculators’ recent trading activity is supportive or restrictive of the current price move.

Performance of Underlying Futures

(weekly reporting period ending May 5th)

Corn: Prices for the reporting period rose 6% with flat open interest, while the large speculators’ net long position exploded by nearly 90% over the previous week. This dynamic tells us that the large speculators are increasingly bullish, yet the market overall is failing to attract new institutional buyers. This will likely change as the dollar weakens further.

Soybeans: Prices for the reporting period rose 13% and continued to see steady gains in both open interest and the net long position for the large specs. This dynamic of the open interest and the net longs rising in tandem demonstrates continued support for soybeans’ bullish leadership of the grains complex.

Wheat: Prices for the reporting period rose 6%. Open interest was down more than 5% over the previous week while the large specs’ net short position decreased by a whopping 78%. This feels more like short covering and spillover optimism from soybeans and the outside markets, rather than a sustainable bullish move for wheat. We have noted recently that wheat has the most difficult fundamentals to overcome in the grain complex. Production shortfalls due to drought and planting delays would need to be near historic levels to substantially impact the supply-demand equilibrium in the near term.

This week the trade turns its immediate attention to the May 12th supply-demand report, where the USDA will give the market its first official estimate of ending stocks for the current marketing year..seeking alpha