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Sentiment in corn the past few weeks has been overwhelmingly bearish considering the growing season lies ahead, and rumors circulating of China’s interest in purchasing 7.0 million tons of corn and 3.0 million tons of ethanol. Last week, the Commitment of Traders Report showed the trend following funds short 940 MB, their biggest short since January 2018. In the meantime, the index funds are long 1.170 BB, their smallest long position since March 2009. Never have I seen these two factions at such opposite extremes. This could be the catalyst that forces the trend following funds to cover shorts if the index funds would increase their longs for the longer-term trend. In other developments, export inspections were 30.1 MB and below the average needed to reach USDA’s target of 2.375 BB.
Traders are facing the reality that domestic and global stocks of soybeans will be in oversupply even with additional purchases from China. Last week’s inspections were 32.1 MB and below the average needed to reach USDA’s projection of 1.875 BB. China took 14.2 MB with their cumulative total since early January standing at 124.5 MB. However, this is only an average of 13.8 MB per week and below the minimum of 15 MB they received each week prior to the tariffs. In other developments, Brazil’s soybean harvest has progressed to 57 percent complete compared to the average of 47 percent. Conab cut their production estimate to 113.5 million tons which is below USDA’s estimate of 116.5 million. However, this would still be the third largest crop on record. Currently, the funds are short 410 MB and will likely add to their position if they cover shorts in corn and wheat which are at an extreme.
For weeks, wheat wallowed in depths of a dark abyss but is starting to see light at the end of the tunnel. Sentiment generally changes when an extreme is reached. Recently, wheat sank to only an 18 percent premium to corn making it more attractive in livestock feeding. Meanwhile, the funds are short 545 MB, their largest short position since January 2018. Adding to it with prices at their most depressed level in over a year is overloading the boat. In other developments, export inspections last week improved but were still below the average needed to reach USDA’s target of 965 MB.
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