Market Thoughts 05.09.21
***What Matters When You Market II – June 24th, 2021 – Knight’s Lodge, Riverdale, ND***
***Lighthouse Labs Algo Update will be sent out shortly***
July corn futures gained 59 cents this week to close at 732’2. Futures have now rallied 158 cents in three weeks. For some context on how improbable such a move is, the largest three week move ever in corn, during late June/early July 2012 was 162 cents. July soybeans gained 55’4 to close at 1589’6. Bean prices are also remarkably high but beans continue to perform worse than corn despite seemingly much stronger fundamentals. July spring wheat gained 33’6 to close at 797’4 after trading as high as 807 earlier in the week.
Nearby corn futures achieved the object we’ve been talking about since September by fully plugging a gap left near 700 when July 2013 futures went off the board. In the process, corn futures are now at record highs for the time of year, leading us to consider a few things:
Two weeks ago we noted that corn had only been at those price levels three times prior and all three times saw substantial further rallies into summer. We concluded quite confidently that 2021 would see the same thing but didn’t expect to see so much of it in the next two weeks.
There have only been two other times in history when corn has moved this much in three weeks – summer 2012 noted above and summer 2008. In both cases futures continued to rally modestly, topping out within a month while the 2008 seasonal that is most similar to 2021 featured a massive subsequent decline.
We talk a lot about seasonals and it’s important to remember corn can make a seasonal high in May – Dec corn has done so a couple times recently, May 9th, 2014 and May 29th, 2018.
Continuous corn filled the gap we noted above but left a gap at 658 in the process. There will also be a large gap left when May goes off the board on Friday.
We remember talking earlier this winter about if corn could get “Gamestopped” and well it turns out it can (though you’d think all the populist rhetoric on reddit means they’d want to drive prices lower not higher…) Absolutely fascinating to look at money flow the past three weeks. Recall that you have two main classes of market participants – Commercial (farmer/supply chain participant) and Managed Money (large speculators). And every futures transaction involves a buyer and a seller. In an uptrending market, the buyer is normally Managed Money (betting prices keep going up) and the seller is the Commercial (as the farmer markets grain into the rally.) Along with that, open interest nearly always increases during a healthy rally. Open Interest, or the amount of open futures positions, increases when new buyers and sellers enter the market. Thus, a healthy rally is one that is attracting fresh buying while existing long traders hang onto their positions. This is why Managed Money net position is such a critical insight when analyzing prices. Or at least it used to be…
This week’s CFTC data showed Managed Money net long position decreasing on the week. So who was the buying the market to move it 59 cents higher? “Other”, or small traders, increased their net long position over 25,000 contracts! Pretty sure your dentist is long corn right now. And even more intriguing, open interest was down 28k contracts on the week. It appears during the third week of the second largest run in corn prices ever, managed money is handing off their long positions to the retail investor...
It’s incredible to see Managed Money shed over 50k contracts of length with open interest plummeting during the second-largest three week price rally in history but we’re not totally sure what it means yet. We’re inclined to think it is bearish –smart money has had enough and soon your dentist will want to get back to drilling teeth. But the other argument would be look at where prices are at today, ahead of a summer’s worth of weather risk and Managed Money now with plenty of buying power…