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Grain futures rang in 2016 with their back against the wall. Turmoil in China’s economy and a grim start for the new year in equities weighed on values. While traders will begin to focus on spring weather following the January 12th grain stocks and crop reports, the issues that may have a greater impact this year could be the global economy and geopolitical events, especially in the Middle East. Meanwhile, corn exports remain a sore spot. Although we had a shortened week because of the holidays, inspections were a meager 12.7 MB. We must ship 40.5 MB each week to reach USDA’s projection of 1.750 BB. The funds are becoming more bearish as they upped their short position 275 MB to 900 MB, the largest since June of last year. After the January 12th reports, the battle for planted acres of corn and soybeans this spring will begin in earnest.
Recent showers in Mato Grossa have allayed dry weather concerns. In the meantime, harvest of irrigated soybeans has begun with a few reports of yields being down 13 percent from a year ago. In a couple of weeks, harvest of non-irrigated soybeans will get underway. As I mentioned in a previous comment, USDA might lower their production estimate slightly from 100 million tons in the January 12th Crop Report. Looking at exports, inspections last week topped the previous week at 55.5 MB, which is a bit of a surprise since it was a shortened week. China took 36.2 MB or 65 percent of the shipments. While exports were better than expected, the pace has fallen 41 percent since peaking in November. In other developments, the funds remain bearish as they added 145 MB to their short position increasing it to 515 MB. This is a record position and could open the door for a bout of short covering.
An interesting situation is unfolding in wheat. The market has broken to a new contract low, the funds are short a record 590 MB, and commercial traders are long 35 MB. This is only the second time that they have been long since January 2007. With commercial interests covering future export sales with long futures (until the grain is acquired), the funds could find themselves eventually boxed into a corner and forced to cover. It may not happen right away, but be aware that the threat is present. Export inspections last week were meager at 12.7 MB, but the pace has picked up considerably since bottoming in early November. This substantiates why the short position of the commercials has dwindled, and reversed into a long. If we follow the seasonal norm, shipments may stay on a slight upswing into March.
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