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Funds...Climbing the Mountain

Published on Monday, June 3, 2019

Planting pace again failed to meet expectations as corn is now 29% behind the average pace and soybeans are 40% behind their pace.  The states of highest interest continue to be Illinois, Indiana, Ohio, Michigan, Missouri, and South Dakota.  A full view of this week's report can be found below.

While the pace of planting may be slow, fund buying is anything but.  Last week began on a Tuesday after an extended holiday weekend.  That day was also the last day of published data regarding the position held by large fund traders (managed money) in our marketplace.  A close look at their position reveals a sizable two week move that led fund traders from a record short position two weeks prior to a near neutral position last Tuesday.  See Commitment of Traders (COT) Chart below.

While the last report shows the fund community mildly short (22,000 contracts), current estimates have them equally long (approx. 30,000 contracts) after last weeks trade.  Fund buying has certainly slowed down in recent weeks, but has it ended?  That is the question we get often.  Reality is fund buyers are often know for accumulating anywhere from 125,000 to 250,000 of approximate long positions.  This leaves room for much more buying to take place.  Given the continued late planting, they are likely to pursue that sooner than later.  And their pace to accumulate these positions will matter to market performance.  See Weekly Chart below.

Since a single week of activity covers part of two reporting periods for the COT report, there is a slight disconnect when comparing weeks of market action to changes in COT.  However, in the first and second week of market movement since the rally began, one COT reporting period showed a decline of 181,000 contracts in the fund short position.  In the week the followed, corn price movement upward slowed down.  That paired with a net change in their position by 95,000 contracts.  If estimates about their current position are correct, only 50,000 contracts would have been added since the last report.  This explains most of last weeks volatile, but sideways trade.

If they should move back toward a typical long position (100,000-200,000 greater than their current position), their zeal to obtain that benchmark will help to determine the market's capacity to move higher.  Its not just about whether they do it, its also about how fast they do it.  That in mind, producers are encouraged to still consider the opportunity before them.  Contact us to sort through strategies prudent and appropriate to your operation.

Best Regards,
Mike North

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