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Technically...A Set Up

Published on Monday, April 15, 2019

Last Tuesday the funds officially moved to a new record net short position in corn at a staggering 294,352 contracts short ( see chart below ).  While this certainly has not allowed for great pricing opportunities, it may be the very catalyst that allows for better opportunities.  Upon closer observation of the chart below, it becomes apparent that the managed money does not typically carry a large short or long position for an extended period of time.  When the funds do decide to exit this massive short position, our hope is that they literally get scared out of their short and quickly become eager buyers.  

Let's reflect on where the funds were positioned the last 4 years when we have set our pricing highs for each contract.  The spring of 2015 we witnessed July 2015 corn prices move from trading near $3.50 futures to $4.36, an 86 cent move higher in just over a month.  At this same point, the funds transitioned from a short position of near 100,000 contracts to a long position of slightly over 200,000 contracts.  They were effectively buyers of 300,000 contracts of corn.  The spring of 2016 we once again found front month futures trading near $3.50.  At this time, the funds were carrying a short position of over 200,000 contracts.  While it took a little longer for us to reach our high of 4.39, the funds moved slightly over 400,000 contracts.  This netted us an 89 cent rally.  With burdensome ending stocks at 2.29 billion bushels, our summer 'rally' was much more muted than prior years.  This past summer the funds switched from over 200,000 contracts short to slightly over 100,000 contracts long, resulting in a mere 30 cent price adjustment.  In February 2018, the funds were once again carrying about 200,000 contracts short.  As in previous examples, we experienced futures trading near 3.50 to a high of 4.12.  In that 62 cent rally, the funds were buyers of 400,000 contracts. 

A couple of quick observations in all of this:

There is a strong correlation between the funds moving from a short to long position and positive price movement.  

Opportunity will be present.  The key will be to define it based upon what the market is telling us. A rally is only as good as what action (SALES) we take!

 Give us a call to help you sort through capitalizing on a move higher, should this year play out similar to the prior 4 years.