Corn: March corn settled up 3 ¼ cents at 3.72 ¾. This settlement is just ¼ cent below Monday’s 2-week high settlement at $3.73. Corn opened quietly, posted an early low and then moved higher in a narrow 4 cent trading range. Corn followed soybeans today in thinly traded, pre-holiday chop. The funds continue to hold a decent size short bet of 85K contracts. Bulls have touted dryness in South Africa as they are winding up their planting efforts. Looking at the charts, CH “tested” the $3.65 level four separate times in the past 3 weeks. Looking at the forest vs. the trees, CH has been a 40 cent trading range over the past 16 weeks, with support at $3.70 and resistance above at $4.10. A failure of support at the $3.65 level could open the door to more knee jerk selling on the part of speculators and producers alike. Hedgers: No change in recommendations. Wheat: March wheat settled down 1 cent at $4.87 ½. Choppy two sided trade continued in the wheat. While corn and beans rallied today, spreaders leaned into wheat, selling it steadily all session in a relatively narrow 5 cent trading range today. No change in fundamentals as the US and the world sit on large supplies. WH has been mired in a trading range over the past 16 weeks. While we had a nice post-harvest rally from the September 4th contract low at $4.72 which peaked out at the October 7th high of $5.38, we have been whipping sideways in a 40 cent range since then. Moving forward, the funds are now short 45K contracts, backing off slightly after Monday’s volatile bounce in KCH. The market posted contract lows rejected those lows, only to gyrate sharply since then. The market remains thinly traded and subject to the whims of the HFT traders chasing each other on technical moves when the fundamental story remains firmly bearish and stale. If support fails in WH at $4.82 or $4.72, it could open the door for more knee jerk selling by speculators and producers. Hedgers: No change in recommendations. Soybeans: March soybeans settled up 11 ½ cents at $8.75 ¼ which is a 2-1/2 week high settlement. SH posted its low overnight and kept pressure on the weak shorts all day. Monday’s contract low at $8.44 ¼ has been met in the past 72 hours with a 32 ¾ cent “correction” higher. That term “correction” is really another word for “losing experience” for all of the folks who piled on the shorts betting on the outcome of the Argentinian election. The announcement today was classic political theater. The anticipated 90 day tariff holiday on grains was “clarified” by President-elect Macri. The soybean tax, it turns out, will be reduced by 5% every year. The idea that there was going to be elimination or temporary modification of the soybean tax was a “rumor”. The backing away from the tax holiday forced a lot of weak shorts to “back away” from their losing short bets. 33 cents on a one lot futures contract is $1650.00. The funds are short 50K contracts. That’s 250 million bushels. That’s an $82.5 million loss over 3 trading days. Time will tell how much more pain they will endure before they either 1) double up or 2) pull the emergency shoot and take their losses. Hedgers: No change in recommendations. Friday we will re-open at 8:30 AM for a ½ day of trading. Being that it’s the end of the month, there’s a possibility of some more choppy trade. Currently the funds have a well-publicized short bet on commodities. The setup is strikingly similar to where we were back in mid-June for the grains. That big short bet failed for the funds then. Their short-covering rally lasted exactly 20 trading days and gave us the highs for the summer mid-July. Will it play out the same way this time? No one can be completely sure. The funds do not make a habit of riding losers. They do make a habit of adding to winners. If you own physical grain as a producer, it’s nice to see the funds on the wrong side, getting pressured and losing money as the market bounces higher. Your worry has to be, what if they are right long term. What if the recent contract lows were to fail between now and the January USDA report? Hedging unpriced grain with put options still makes sense. Just make sure you don’t have a lot tied up in any put option now; IMPORTANT SAFEYT TIP: “Not a lot”… does not mean ZERO. If the funds are right and end up pressing these grain markets lower, we may be looking back 8 weeks from now longing for $3.70 corn $8.75 beans and $4.90 wheat. Stay disciplined but be smart. Protect the downside, but do not use expensive options to protect that down side possibility. By the same token, the flip side demands call options. We recommend re-owning bushels with call options if you are selling grain here at these depressed price levels. Those calls keep you in the game should prices spike higher. CER
