Since the grain price capitulation during July and August, sentiment has shifted.

What’s happened

Over the month of September grain prices gained back significant portions of that price sell off.

The bearish fundamental of large U.S. crops growing in fields has been priced into the market, and traders instead have shifted their focus to future events.

The fund traders were some of those traders who decided to shake off that bearish price mentality during September. They exited large amounts of their hefty, net short positions in grain futures by buying back their short contracts. This helped lift prices.

From a marketing perspective

Who are ‘the funds’? They are traders who represent the big investment money that trades in commodities. Fund managers watch and monitor grain market fundamentals and technical chart aspects, as they look for opportunities to invest and make money.

When they are long (buyers) in the grain market, prices tend to trade higher, and there are usually underlying friendly fundamental components supporting grain prices, too. When funds are short (sellers) in the market, it is often due to grain supply and demand fundamentals that are shifting to bearish.

The good news is that we can keep an eye on their actions. Every week, the government requires the funds to disclose the number of positions they bought or sold during the week. From there, we can track whether they are amassing a long or short position in the market.

Related:How much are we leaving in the field?

More than a year ago, I alerted you to the fact that the funds were starting to adopt more of a selling mindset, as they exited near-record long positions in the agricultural space – a mindset still stemming from the Ukraine and Russia war.

At that time, the global perception was that grain supplies around the world were starting to rebuild, and demand for commodities was potentially slowing, as the Fed began to aggressively raise interest rates. Mother Nature added support to the selling mentality with improved global weather for crop production. The funds shook off their bullish shoes and started selling many agricultural commodities, which weighed on prices.

Looking at the chart below created by my friends at ADMIS, you can see how as interest rates started to rise in spring of 2022 (red line), the funds began to exit long positions (blue vertical lines) in the agricultural sector. The more interest rates continued to rise, the more the funds sold off those long positions. They even started to become net sellers in some commodities, including wheat, hogs, and even corn and soybeans.

Related:Market looks to the Southern Hemisphere

The assumption was that higher interest rates would reduce demand for commodities, and therefore less demand would likely equal more supply. In addition, because of higher interest rates, the funds could invest in other potentially less risky investment areas and receive a decent rate of return on those investments, which was also due to the higher interest rates.

But now the tables may be turning as the Fed has finally begun to cut interest rates, after holding them at higher levels for nearly a year.

As interest rates come down, the managed money funds will likely continue to retreat from their negative price outlook. The next question is: Will they come sneaking back into the agricultural space as buyers in late 2024 and early 2025?

Prepare yourself

While the main driver for agricultural prices is supply and demand, plenty of other important factors influence prices of agricultural commodities. If you’ve been reading my blogs, you know that those include weather, geo-politics, the value of the U.S. dollar, and various global supply and demand factors. But the fundamental factor that has my utmost attention right now is the activity of managed money fund traders.

A weather market? A further change in interest rates? Showing profits on the books at the end of the third quarter? The upcoming U.S. election? Hard to say for sure what might inspire the funds to trade in the future.

Related:Is there more pop in corn prices?

But one thing is certain: The weekly positions and trends of the funds influence agricultural commodity prices.

Reach Naomi Blohm at 800-334-9779, on X: @naomiblohm, and at [email protected].

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.