Funds Head for the Exits as Grain Markets Crack to Multi-Month Lows

The fundamentals of the grain and soy markets continue to dominate the early June trade as no US weather threats, no Chinese movement toward following through on the trade deal, and the ongoing impasse with Iran, have left no bullish news for the bulls to trade. Today’s wipeout in wheat sets a bearish tone for the grains daily trade as neither corn nor wheat have any particularly bullish news to trade. Bean oil remains the only bullish market and has supported beans, but beans also fell to new multi-month lows along with corn and wheat. When the funds are bullish, they are the farmers’ best friend, but when they turn bearish, their enormous amount of cash can wreck the best marketing plan when they start their heavy volume selling. The bulls need some news, and it better come soon because the funds are still holding significant long positions in corn and beans.

News and Notes:

- This week’s steep losses are a direct result of non-threatening US and world forecasts and current weather that produce little crop stress. US and Canadian forecasts are now peaking almost to the end of June and none of the major models have any drought or heat stress developing.

- The December corn daily chart is on Page 2 and shows the nasty losses since the May 13th high, as the bullish “inflation” traders have accelerated their losing position selling forcing prices to new 3 ½ month lows today. With the funds drastically cutting their net long over the last 2-weeks, the commercial longs have been slowly buying the funds panic selling. Corn has easily fallen through all moving averages, and today’s acceleration under the 200-DMA (black line) is either setting up one last washout day before finding stability, or a slow grind lower similar to the slow grind higher from mid-April to mid-May. Regardless, the chart is ugly, and the funds are still long roughly 700 MBU.

- Weak or scared money always seems to be exposed in our markets and that has been the market’s mission so far this week. Markets cannot bottom until those players are washed out on painful losses and margin calls. Markets always test your nerves and cash supply.

- Wheat continues to be an anchor for the grain sector as prices fell through $6 for the first time in 9-weeks as harvest pressure has taken over the record low US wheat crop ratings. Wheat, like corn, is in a tough technical position, and will need to develop some independent strength to help the grain markets find some footing.

- China remains conspicuously absent from the daily sales reports although some cash sources indicate there is under the radar business being done. The USDA announced today that S Korea bought 5 MBU of corn. Thursday’s weekly export report is not expected to show any bullish news, as sales so far this week have been routine and seasonally slowing. Weekly ethanol production has also flattened.

- Cattle had another early sharply lower trade, but losses were cut in half or more by the close. Cash trade has been working lower recently, pulling away that leg of support.

When several of the major analytical firms that I subscribe to all turned ultra bullish May 16th after the additional Chinese trade announcement, the cautious and skeptical part of my brain put up a red flag. As it turned out, I should have paid more attention. The price collapse since that announcement has been more than ugly. There were three things the market and traders were counting on: 1) The Trump team would execute market friendly deals possible with China and Iran. 2) China could be trusted to follow through on a trade deal that had no enforcement mechanism. 3) The war in Iran would have a much bigger inflationary impact on all markets. Over the last 2 ½ weeks, none of those things have had a bullish impact on the markets and the bullish fund money got tired of waiting and has aggressively bailed out. This does not mean those factors cannot offer bullish support moving forward, but if the US weather remains average or above and the USDA does not shock us with the planted acres' numbers on June 30th, the highs of the year are easily behind us. It is hard to have to deal with that potential reality in early June, but that is why all rallies need to be sold, and hedges almost never need to be lifted. Your marketing plan should always have the foundation of making decisions based on the best information available and then sticking with them.